In this article we will discuss about the retailing of goods and services in India! Learn about:- 1. Meaning of Retailing 2. Definitions and Nature of Retailing 3. The Retailer within the Distribution Channel 4. Classification 5. Elements of Retail Marketing Mix 6. Strategies 7. Non-Store Retailing 8. Decision-Making9. Tools 10. Operations 11. Importance 12. Strategic Issues 13. Recent Trends 14. SWOT Analysis and Other Details. Also learn about the opportunities found in retailing in India.
- Meaning of Retailing
- Definitions and Nature of Retailing
- The Retailer within the Distribution Channel
- Classification of Retailers
- Elements of Retail Marketing Mix
- Contemporary Retailing Strategies
- Non-Store Retailing
- Decision-Making in Retailing
- Tools of Retailing
- Retailing Operations
- Importance of Retailing in an Economy
- Strategic Issues in Retailing
- Recent Trends in Retailing
- SWOT Analysis of Retail Industry in India
- Challenges of Retailing
- Steps Necessary to Promote Organised Retail
1. Meaning and Definition of Retailing:
Retailing is a set of activities performed in selling the goods and services directly to the end users. The goods and services sold to the consumers are meant for their personal use and not for resale or business activity. Retailing is the last activity conducted in the chain of product distribution.
In principle, retailing is a business activity which involves the sales of goods and services to a large number of consumer spread over a large area. There are different forms of retailing. Many of the forms keep emerging according to the convenience of the buyers and the retailers.
In large towns, retailing is organized and mostly performed through stores and automatic vending machines. However, in the rural areas, the retailing of goods and services is conducted through the traditional pattern of displaying the goods in the mobile van, carts and on footpaths.
For understanding the types of retailers and their function, the retailing network may be classified into two broad categories- (i) store retailing, and (ii) non-store retailing. Like the growth cycle of business firms, the retailing activity also passes through four stages- embryonic, growth, maturity and decline.
A retail store observes the period of accelerated growth, reaches the stage of maturity and then starts declining. It has been observed that the old-fashioned retail stores took more than five decades to reach the stage of maturity in terms of volume of sales, coverage of consumers and expansion of chain of retail stores. However, modern retail store types reach their maturity very fast due to organized retailing management.
Some of the major retail stores are briefly described here:
i. Departmental store.
ii. Exclusive retail store or specialty store.
iv. Supermarket, hyper-store.
v. Convenience store.
vi. Discount store.
vii. Non-franchise or catalogue store.
A departmental store offers a wide range of products in an organized fashion and is easily accessible by the consumer. The product line of departmental stores is substantially long. Departmental stores provide better amenities to consumers for shopping by virtue of having adequate infrastructure for parking, leisure activities and hobbies.
Departmental stores face stiff competition from discount shops and downtown retailers of poor quality goods. Departmental stores provide the consumer services of honoring the product guarantee, warranty, post-sale services and the latest technical information. Departmental stores also organize educational programs for the benefit of the consumer on the various aspects of products use and other related matters.
Exclusive or specialty retail stores are unlike departmental stores and do not have a long product line. These stores are narrow in their product lines and are largely confined to the product line of a specific company. They present a varied assortment within that product line. Examples can be drawn from many consumer goods companies promoting exclusive retail stores like Phillips for a range of electrical, audio and video household gadgets; Raymond’s for textiles; Bata for shoes and leather goods, and so on.
Exclusive stores can be further classified with a narrow distinction as stated below:
a. Single line stores.
b. Limited line stores.
c. Super specialty stores.
Single line stores may be identified as the retail stores selling only one product like textiles. Limited line stores may be defined as the shops having micro specialization based on goods and services, gender and age, like exclusive men’s wear retail stores, kids shoppe for garments etc.
The retail stores engaged in selling products scientifically designed for a particular purpose may be categorized as super specialty stores, e.g., surgical equipments stores, sports accessories; fashion garments stores and the like.
2. Definitions and Nature of Retailing:
According to W.J. Stanton, “Retailing includes all activities directly related to sales of goods or services to the ultimate consumer for personal a non-business use”.
According to Cundiff and Still,” Retailing consist of those activities involved in selling directly to ultimate consumer.”
Retailing is an end part of distribution process. It involves selling products and services to customers for their non-commercial, individual or family use. Unlike whole-selling, retailing is aimed at the actual consumer and involve for personal consumption and not for institutional consumption.
Nature of Retailing:
Retail business can be divided into certain categories on the basis of margin-turnover retail operations this framework is useful in planning and development of retailing strategy. Margin and turn over are the key parameters of retailing. The success of retail outlet depends on these two parameters. Margin is defined as the percentage mark-up at which the inventory in the retail store is sold and turnover is defined as the number of times the average inventory sold in a year.
Low Margin High Turnover:
Retailing may be low margin and high turnovers like in big bazaar, Vishal Megamart, Wal-Mart, Pantaloon etc. they have wide variety of FMCG in several merchandise lines. These stores are located near to the consumers.
High Margin and Low Turnover:
These stores are having distinctive merchandise and sales approach. The stores in this category price their products above the market price. These store provide many specific services and sell special category of products, these stores are located in prime place. Examples are Lifestyle Chain, Armani DLF, Omega, Ethos etc.
High Margin-High Turnover:
Stores are those which have narrow line of items that turn over these are located in a non-commercial location, overhead cost may be high, but high prices can ensure profitability, example are convenience food outlet.
Low Margin Low Turnover Retail:
Stores are having competitive low price, at the same time sales volume is also low, their location is also poor, and they face difficulty to survive in market.
3. The Retailer within the Distribution Channel:
From a traditional marketing point of view, the retailer is one of many possible organizations through which goods produced by the manufacturer flow on their way to their final consumers.
These organizations/firms perform various roles by being a member of a distribution channel. For example, a soft drink producer will use a number of distribution channels for its confectionery, which involve members such as agents, wholesalers, convenience stores, supermarkets and vending machine operators.
Hence, these channel members, or marketing intermediaries as they are sometimes referred to, typically perform the functions that a manufacturer does not have the resources to perform.
A distribution channel is a set of chain of firms/intermediaries that facilitate the movement of products from the point of production (POP) to the POS to the end consumer, and retailers are the final contact to business transaction in a distribution channel that links manufacturers to consumers. In this flow or chain, wholesalers come before the retailers, and it is also essential to understand the term “wholesaler” as both wholesalers and retailers are intermediaries in distribution channels.
Wholesalers are typically involved in selling to individuals or organizations for their business use or for resale purpose. In other words, wholesalers buy and resell merchandise to retailers and other merchants and not to the end consumers. Generally, wholesalers sell in large quantities/volumes. They take the title of the goods and also provide credit facility to the retailers. Hence, a wholesaler acts as an intermediary between the manufacturer and the retailer.
Retailing thus may be understood as the final step in the distribution of merchandise, for consumption by the end users. In easy terms, any individual or firm or organization that sells products to the final consumers is performing the function of retailing. They endeavor to satisfy customer needs by having the right merchandise, at the right price, at the right place, in a convenient way when the customer wants it. This creates real added value or utility value for the end consumers.
This comes from four perspectives, and they are as follows:
1. The form utility of the merchandise that is acceptable to the customer.
2. The time utility by keeping the store open when the consumers prefer to shop.
3. The place utility being available at a convenient location.
4. The ownership utility when the merchandise is sold.
In this way, retailers provide a platform for manufactures to sell their merchandise. This also includes activities/functions such as displaying the merchandise in the most attractive way, alongside related or alternative items at a geographic location and at a place that is convenient for a consumer to access during shopping.
These intermediaries facilitate the distribution process by providing points where deliveries of merchandise are altered in their physical state (such as being broken down into smaller quantities, or being repackaged) and are made available to customers in convenient and/or cost-effective locations.
Over the period of time, using price as a competitive weapon—by introducing ranges of own branded goods (private labels, PLs) and developing attractive persuasive shopping environments and experience— retailer brands have been successful in achieving the consumer loyalty toward their retail stores/outlets. This shift of power to the retailer has been further enhanced by IT that has enabled them to gain a deep understanding of their customers’ purchasing behavior, patterns, and preferences.
For instance, Amazon(dot)com maintains a data warehouse with information about what each customer has bought. By using this pool of data and information, customers returning to its portal are immediately recognized and suggestions based on their past purchases are made. Also, e-mails are sent to the customers when new books in the subject area of their interest are published.
Hence to gain loyalty, retailers focus on customer service, which is defined as the summation of acts, elements, and value that enables and allows consumers to receive/gain what they desire or need from the respective retail establishment. The brick-and-mortar stores leverage their customer base by making it convenient and engaging to buy at stores, over the Internet.
To take on the non-store retailers, these physical retailers are becoming more than just stores to buy products by offering entertaining and educational experiences to their target customers. These features improve customers’ visual experiences, provide them with a unique shopping experience, and enhance the loyalty behavior and hence sales potential by enabling them to “touch, feel, and try before they buy.”
Although in some distribution channels, the manufacturing, wholesaling, and retailing activities are performed by independent firms, most distribution channels have some vertical integration.
4. Classification of Retailers:
The retail sector can be primarily classified as:
1. Unorganized and
2. Organized retailing
The Indian retail industry was traditionally dominated by small family- run kirana stores or neighborhood mom-and-pop store. These shops are characterized by very small area and limited assortment and varieties stacked in a small place, inefficient upstream processes, poor infrastructure and lack of modern technology, inadequate funding, and absence of skilled manpower. This traditional way of retailing is known as unorganized retailing.
In India, unorganized retailing includes units whose activity is not registered by any statute or legal provision, and/or those that do not maintain regular accounts. Hence, this sector is characterized by small and scattered units that sell products or services out of a fixed or mobile location.
It consists of unauthorized small shops—conventional kirana shops, general stores, corner shops, among various other small retail outlets—but these small shops remain as the radiating force of Indian retail industry. These traditional units generally include haats, mandis, melas, and the local baniyas/kiranas, paanwalas, and others like cobblers and vegetable/fruit vendors and are termed as the unorganized retailers.
Organized retailers are those who are licensed for trading activities and registered to pay taxes to the government. Organized retail is nothing but a retail place where all the items are classified and segregated according to their utility, form, and nature and brought under one roof. They are placed in different departments and displayed very systematically with their price points. These items are then selected by the customer and billed at point of sale (POS) with a computerized receipt of payment.
Meanwhile, the customer is assisted by the sales staff with a professional approach. Organized retailing thus provides merchandise with wide variety and deep assortment with a large number of stock-keeping units (SKUs). An SKU is a single item of merchandise for which separate stock and records of sales are maintained.
Organized retail deals with multiple formats, which is typically a multi-owner chain of stores or distribution centers run by professional management. Today, organized retailing has become an experience characterized by comfort, service assistance, convenience, style, and speed. It is something that offers a customer more pleasure, brand association, variety and choice for selection, loyalty benefits, entertainment, and, hence, a complete shopping experience.
5. Elements of Retail Marketing Mix:
To implement a retail marketing strategy, management of a brick-and-mortar retailer develops a retail mix that satisfies the needs of its target audience with the right shopping experience. The retail mix is the perfect blend of factors retailers use to satisfy customer needs, influence their purchase decisions, and connect with them not only on transactional level but also on emotional level.
Elements in the retail mix include the brand positioning, merchandise mix and level of services offered, right pricing, PLBs, advertising and promotional programs, physical environment, store design, layout and ambience, VM and display, PR and social media strategy, location strategy, philanthropic and CSR activities, CRM, and loyalty programs.
The merchandisers in the retail organization decide on how much and what types of merchandise to buy, the variety and assortments, from where to procure the merchandise and the purchase terms, the retail prices to set, and how to advertise and promote merchandise.
The visual merchandisers work on how the visual effects are created by using various elements like color, lighting and display themes and the fashion in which the merchandise shall be displayed. Store managers in association with HR executives determine how to recruit, select, and motivate sales associates.
They also work on where and how merchandise will be displayed, complying with maintaining the planograms, day-to-day store operations, and inventory management.
6. Contemporary Retailing Strategies:
Supermarkets are a type of organized retail stores which handle a relatively large volume of goods and services at low cost – the high margin principle of relating. Consumers are provided franchise in the supermarkets and these are largely organized as self-service outlets. Supermarkets exhibit a long range of product line of various consumer needs like grocery, household appliances, entertainment, toys, garments, etc.
It has been observed that supermarkets earn an operating profit of 1-2% on their sales and 10-15% of their net worth. Supermarkets also provide consumer conveniences like in-shop entertainment, pantry, home delivery service, opinion survey and consumer education. Supermarkets have chain retailing in many countries like Woolworths in the UK and Europe.
iv. Supermarket, hyper-store:
There is a marginal difference between a supermarket and a hyper-store. The latter category of stores operates on a larger area (approximately 1-2 lakh square feet) with a wide range of products. These markets have a combination of all retail functions like credit services, discounts, finance and other related services.
The basic approach of a hyper-store is exhibiting a wide range of assorted products for all types of consumers and displaying them in bulk. The product handling costs in such stores would be minimum and they also function as the sole distributors to the convenience stores.
These stores are small retail outlets located near residential areas for the convenience of the consumers. They are open for long hours and all through the week. This category of stores carries a limited line of consumer products. Convenience store operate at a high turnover and a relatively higher profit basis as when compared to any of the other retail stores. The consumers seem to be willing to pay a higher price to the retailers for the convenience provided to them at their doorsteps.
vi. Discount Stores:
In principle, a discount store should sell all types of merchandise, offering largely reputed brands at lower prices but not inferior goods. Recently, some consumer products manufacturing companies have started owning discount retail stores to sell products earmarked as second grade by their quality control division. Hence, discount retail stores have moved from general stores down to speciality merchandise stores such as discount sporting goods stores, garments, shoes, electronic, book stores and the like.
vii. Catalog Showrooms:
The catalog store is a new generation super store which deals with a variety of goods and services of a wide large. Such stores conduct retailing operation for all types of goods including interiors, construction material, mechanical gadgets, electronics, and many more. Consumers buying goods from catalog shops have to ask for or indent specific goods as per the inventory specification in the catalog.
The consumer wait in the designated place for the delivery of the goods and at times the stores even arrange a home delivery for heavy products. Catalog stores provide a return facility to consumer within a stipulated period. The goods can be returned to the stores without any reasons if the consumers are not satisfied.
7. Non-Store Retailing:
Besides on-store retailing the direct selling approach has emerged in the recent past as an effective sales instrument. Direct selling is one of the most popular non-store retailing activity, particularly for consumer goods.
The sales representatives of the company/distributors canvass the product on a door-to-door basis and contribute in augmenting sales. Automatic vending machines for selling consumer products like chilled beverages, etc., are also making use of non-store retailing approaches.
The specific non-store retailing types are as given below:
i. Direct marketing.
ii. Automatic vending machines.
iii. Business by mail orders.
iv. Tele-shopping or net-shopping.
v. Mobile retailing.
Multi-level retailing stores, chain-retailing stores, cooperatives network and merchandise conglomerates are the new forms of retailing that have emerged in the recent past.
8. Decision-Making in Retailing:
Retailing is considered to be one scientific, grassroots-level selling approach in the twentieth century. Hence, a retailer has to make the right decision at the right time to promote his retail business.
The specific areas that need to be planned properly are:
(i) Choice of place,
(ii) Choice of products – assorted or exclusive,
(iii) Price level,
(iv) Tools of retailing, and
(v) Consumer services.
The decision regarding the choice of place and product are interrelated, e.g., in a high income locality, a retailer should plan for high price assorted product stores and vice versa in a low income consumer locality.
9. Tools of Retailing:
Retailing is an art. Retail stores play a vital role in product promotion as they are directly associated with consumer. A successful retailer tries to get the consumer involved in the trade by providing a good reception, good facilities and individual attention. However, a retailer follows a variety of approaches to make his retailing a success.
Some of the tools used by the retailers for promoting their business are listed below:
(i) Retailers dealing with similar products from an association to jointly carry promotional activities such as advertising, pricing and other related matters.
(ii) Retailers do pre-ticketing by placing price tags on those products indicating all the required information such as the date of manufacture, size, volume, name of the manufacturer, date of expiry, product code of the manufacturer as well as that of the retailer for any complaints or reordering.
(iii) Retailers also help the consumer in re-indenting the products by sending them reminders and catalogues of the products.
(iv) Retailers also introduce special prices during the peak seasons for storewide promotion.
(v) Consumers enjoy the privilege of returning or exchanging damaged goods without paying any additional price.
(vi) Distributors and company representatives get the sponsorship of the retailer for demonstrating their products in his store.
Besides these services, retail stores provide many pre- and post-purchase services to satisfy the customers. The pre-purchase services include accepting orders on telephone and by mail, in-store and outside store advertising, interior and window display, consumer convenience, fitting rooms, shopping hours, organizing consumer entertainment like the integrated cable TV, fashion shows, recipe contest, baby shows, etc.
The retailers provide select post-purchase services to consumer such as – home delivery of goods, gift packaging, returns and exchanges, tailoring, installation, demonstrations, accepting credit transactions and cheques. In addition to the services listed, large and chain retail stores provide leisure and general amenities to the consumers like rest rooms for consumers, baby sitters, restaurants, etc.
10. Retailing Operations:
Managing the Store Atmosphere:
The store must offer a positive ambience to the customers for them to enjoy their shopping experience so that they leave with a smile.
i. Basic necessities should be taken care of like proper arrangement of products, no foul smell; clean floors, ceilings, carpets, walls; clean dressing rooms etc.
ii. No eatables should be allowed inside the store.
Cash registers, electronic cash management system or an elaborate computerised point of sale system should be there to manage the daily sales and the revenue generated.
(i) Apparatus to prevent shop lifting, for example – CCTV.
(ii) Do not allow customers to carry more than three dresses in a trial room.
(iii) Every merchandise should have a security tag.
(iv) Ask the individuals to submit their carry bags at the entry point.
(v) Keep expensive products inside cabinets and prevent children from touching any fragile items.
(vi) Keep a proper power backup system.
(vii) Train the sales representatives to handle any security breach.
Customers’ shopping experience should be excellent in the store. In this era of competition when most of the things are available in every next shop, it is the customer service which can be the USP (Unique Selling Proposition) of any store. Thus a satisfied customer would be the one who would visit again along with five other customers.
(i) Formulate concrete policy for refunds and returns.
(ii) Store should have fixed timings for refund/exchange of merchandise.
(iii) Never be rude to the customers, instead help them to find options.
(i) There should be adequate light in the store.
(ii) Do not stock unnecessary furniture in the store.
(iii) Choose light and subtle colours for walls to set the mood for footfalls and impulse purchase.
(iv) Choose the signage display that must display all the necessary information.
(i) The store manager must conduct frequent training programmes for sales representatives, cashiers and other team members to motivate them from time to time.
(ii) It is the store manager’s responsibility to update his subordinates with the latest practises and softwares in retail industry.
(iii) He should collate the necessary reports (salary, inventory, performance appraisals) and send it to head office on timely basis.
(iv) Inventory and Stock Management.
(v) The retailer must ensure to manage inventory to avoid being ‘out-of- stock’.
(vi) Every retail chain should have its own warehouse to stock the merchandise.
(vii) Take adequate steps to prevent loss of inventory and stock.
11. Importance of Retailing in an Economy:
Retailing plays a significant role in economic system of any country. It involves selling goods and services to the ultimate consumers. “Retailing is a part of the continuous process going in between the farm and the factory and household in which goods are changed in form, packed, transported and subdivided”.
Retailing is one of the oldest of all business institutions. It has developed along with various stages of civilization, altering its form or varying its offerings to meet the changing demands of the people it has served.
The roots of retailing are embedded deeply in antiquity. In the earliest cultures, trading and bartering took place. These activities were conducted for the purposes of satisfying basic needs and accumulating luxuries.
The importance of retail trade runs through the entire story of human race. From the very beginning of human history, it is found that people traded with one another for necessities of their lives. And throughout, the objective has the same – the struggle of mankind to satisfy his wants.
The earliest traders were soldiers of fortune who travelled from place to place engaging in barter with whoever had something desirable to trade. In the earliest nations of antiquity of which there are historical records as well as those which came later, trading was widely carried on. Every city and village had its market places; most of them seem to have had retail shops of one kind or another.
In ancient Greece and Rome, for example, retailers of many kinds abounded. In the larger cities the shops were apparently grouped together by kinds of business in certain locations. Over a period of time the retailing business passed through various stages of development.
The retailing business reached to a stage of playing critical role in the development of an economy. The major problem which confronts the business is the problem of distribution. No other business is as widely affects the public as retailing does.
It closely touches the common life of the people. The standard of living of the mass of the people depends upon it. If it is carried on as a national service, it consciously seeks to give the best for the reasonable prices and strives to bring all the luxuries of beauty in design and taste within the reach of the people.
Retailing is a vital, potent and articulate economic institution in the distributive system. Retailer is the last link in the long chain of distribution. Retailers will be more in number when compared to the manufacturers and wholesalers. Retailing creates place, time and possession utility and supply of goods to consumers effectively.
Though producers may directly sell their products to consumers, such method of distribution is inconvenient, expensive and time consuming as compared to the job performed by retailers who are the specialists in the line. As a result of which, more often, the manufacturers depend on the retailers to sell their products to the consumers. “The retailer, who is able to provide appropriate amenities without an excessive advance of prices of goods, is rewarded by a larger or more loyal patronage. Retailing helps in transfer of merchandise and adds to their economic value by synchronizing time and place”.
The word “retail” has derived from the French word “retailer” which implies “to cut again” or “to break bulk”. This can be applied to the functions carried out by retailers which include assembling, sorting, standardizing, storing, selling, providing credit facilities, packing, etc. Thus, retailing is the set of business activities which adds value to the products and services sold to consumers for their personal or family use.
Retail means selling goods and services in small quantities directly to customers. Retailing consists of all activities involved in marketing of goods and services directly to consumers for their personal, family and household use. The Indian retailing industry is becoming intensely competitive, as more and more payers are vying for the same set of customers.
Retailers deal in a wide variety of goods. They sell many similar articles in small quantities. They provide a wide range of sizes, colours, types and brands for customers. They maintain a flow of goods to the consumers. Manufacturers usually specialize in one area, but retailers sort out goods of different manufacturers producing similar goods. They interpret the consumers’ for preference of goods.
This division of labour helps the manufacturer to economize by concentrating only on production and leave the distribution work to other agencies. The economy in scale of production is achieved by diseconomies in distribution. Another important economic function performed by retailers is breaking the bulk basis on the preferences of consumers. They sell to consumers in quantities which suit the needs of different individuals.
12. Strategic Issues in Retailing:
When a firm plan to enter in retailing business it is essential to consider strategic issues, negligence of these issues can leads to failure of retail business. For example, Reliance fresh, Reliance petrol stations and Subhiksha. Before venturing into the retailing, a retailer must conduct a situational analysis to assess the current position of his business and what direction it must take. It is essential to evaluate strengths and weaknesses.
Retailer should make identification of the target market and the selection of an appropriate marketing technique suitable for the target market. The retailer can choose among mass marketing, concentrated marketing, and differentiated marketing. Identification of the target market and selection of an appropriate marketing technique should be followed by the design of an overall strategy.
The business environmental factors in retailing like technological advancement, competition, government regulations should be considered. Strategic issues in retailing involve an overall set of plans that help the retailer to effectively conduct his business.
Following are the main elements of retailing strategy:
i. Business Environment Scanning:
Macro and micro factors which can influence a business should be evaluated first which include government policies, technology, resources, competition in market, characteristics of consumer segment etc. It also involves developing an organizational mission, evaluating the ownership and management alternatives, and selecting a product or service type to engage in retailing.
ii. Setting Objectives:
Objectives are set in areas such as retail sales, profits, customer satisfaction and the store image.
iii. Identification of Target Markets and Consumers:
Market segmentation is must to know about needs and expectations of customers. Then identify a suitable marketing process which may be in the form of mass marketing, concentrated marketing, or differentiated marketing.
iv. Developing specific activities on the basis of the day-to-day operations and also the business environment.
v. Finally, suitable control strategies for control have to be devised by evaluating the deviations and correcting them to attain the retail organization’s objectives.
13. Recent Trends in Retailing:
India is one of the fastest growing economies in the world. The retail market in India offers significant opportunities for retailers and brands across categories. This is driven by factors such as a large consumer base, rising incomes and job opportunities, increasing consumer awareness, etc. The organised retail market in India which represents just six percent of the total retail market has a great scope for 2,45,000 entry of new enterprises.
The overall size of retail market in India was the estimated to be Rs. 2,45,000 crore in 2011 which is likely to increase to Rs. 4,40,000 crore in 2016. The main feature of retailing in India is predominance of unorganised retailing i.e., traditional kirana stores. But in the recent years, we have seen the growth of organised marketing in the form of Malls and Hyper Markets. Biz Bazar, Pantaloon, More, and Reliance Fresh have become household names among the urban masses.
The triggers for increasing popularity of organised retailing are as follows:
(i) Increased disposable income with the people because of rapid growth of per capita income coupled with low interest rates.
(ii) Labour costs have risen and it has become uneconomical to employ staff in mom-and-pop stores.
(iii) The changing family structure with double-income families with fewer children means less frequent grocery shopping with more purchase per visit.
(iv) The formal financial system facilitates interest banking and inexpensive credit, which has boosted consumption.
(v) Changing real estate prices made people move to suburbs and the stores with parking facility and food stalls could open in modestly priced open spaces.
(vi) With the development of infrastructure, new roads and better mobility has made shopping from organised retailers easier.
There has been a big quantitative expansion in distribution channels in India during the last few years. The total number of retail distribution outlets in the country is now upwards of four million.
1. In most cases, today’s dealers belong to the second generation in the distribution business and almost all of them are better educated and more aggressive compared to the earlier generation of dealers. Many of them are professionally qualified persons and are capable of dealing with the company executives on equal terms.
2. With the increase in competition and the advent of a buyers’ market, dealers have become more and more assertive. For example, in consumer electronics, the relationship between manufacturers and dealers has vastly changed.
The new situation has led to pampering of dealers by the manufacturers. In many businesses, companies do not have much choice in selecting dealers as dealers have become choosy of manufacturers they would accept to represent.
3. Non-traditional channels have become popular in many businesses. A whole range of new market institutions has also emerged partly displacing and partly co-existing with conventional wholesalers and retailers.
The pattern of manufacturers’ own outlets/showrooms is now extensively prevalent in many businesses. Earlier, manufacturers of products like textiles and shoes were the ones who set up showrooms/exclusive shops.
Now the list is expanding very fast. Indian sewing machine company, Singer has decided that the only way to boost sales is to expand its exclusive shops around the country. The company has already established more than one hundred exclusive Singer centres all over the country.
Companies like Titan watches and HMT in the watch business have gone in for this exclusive option. Cadbury’s and Amul Ice-cream have been setting up their own parlours through exclusive franchisees to sell their ice-cream.
Bata runs a mammoth network of 1250 exclusive shops and it is still expanding. The textile companies have also been expanding their exclusive channels. ‘Raymonds’ and ‘Garden Silks’ are some examples.
4. Companies ensure that all their exclusive shops, whether they are company owned or run by franchisees, look alike so that they create a common store image. The entire package from store design to merchandising and display and recruiting of showroom personnel is coordinated by the main company.
14. SWOT Analysis of Retail Industry in India:
The Indian retail sector is a growing phenomenon, and relaxation in FDI norms has generated even more interest in the Indian retail market. As per retailers’ point of view, infrastructure, economic growth and changing demographics, and the inherent strength of the Indian economy are the most important drivers of retail followed by increase in FDIs and growth of real estate.
In the growing markets, retailing has become one of the major emerging trends in the entire economic cycle. The retail price index is frequently referred to economic indicator. It is a measure that is based on a “basket” of products across all retail sectors and compares prices over time in order to reveal the changes in the cost to households of typical purchase needs.
An increasing number of Indian consumers are ascending the economic pyramid to form an emerging and aspiring middle class, and many business groups are attracted in the past few years, including some renowned business groups like Bharti, Future, Raheja, Reliance, and Aditya Birla to establish hold, showing the future growth in times to come.
In addition, the penetration of organized retail in India is still very low, hovering somewhere around 8%, especially when compared to developed nations such as the UK and the USA, which have retail penetration of around 80% and 85%, respectively. In addition to that increasing purchasing power, disposable income, new policy reforms, and changing spending pattern have essentially captured the attention of foreign companies that are showing their interest to enter India.
However, though the organized retailers in India have experienced fast growth over the last decade, this growth has been achieved at a significant cost. In spite of substantial investment of time and capital during this gestation period, the difference between actual and expected returns is a concern.
One cannot deny the fact that India’s existing retailing ecosystem is not efficient. There is an undesirable loss of value in both the manufacturer and consumer prices, which eventually results in depriving the manufacturers of a fair value for their effort, while compelling millions of inflation-affected, low- or middle-income people to pay much more at the retail than what they should be paying.
This ecosystem is also not fully efficient for the state governments in particular when it comes to getting their fair share of local taxes, and not fully favorable for the central government when it comes to getting its share of indirect taxes, because many small- and medium-scale manufacturers can lucratively evade the taxation net by using the loopholes of current distribution channels containing a profusion of middlemen.
Besides regulatory, supply chain, and infrastructural support, one of the most crucial enablers of the sector is the availability of legal, low-cost, rightly located space to establish new outlets. Hence, suitable amendments need be made in urban planning norms that will provide sufficient space at strategic locations that are close to the residential catchment areas.
The next step is to bring an equitable “zoning” policy that effectively addresses both the issues pertaining to proper location for large-format stores and their potential to cause trouble for independent traditional retail stores in select locations. An appropriate and improvised (in the context of retailing scenario in India) zoning policy relating to big-box and relatively large-format chain stores has the right potential to balance the existence of all retail formats.
Retailing is one of the largest industry in India and one of the biggest sources of employment in the country. India is becoming an emerging, exciting, dynamic retail destination due to large market size, low organized retail penetration, strong GDP growth rate, increasing personal income, and large number of inspirational customers like middle class, young people, and rural population. E-commerce and e-retail are creating fundamental shift in consumers’ shopping behavior, thereby transforming the retailing ecosystem.
One of the most crucial facts about the retail sector is, today, it provides the largest employment in India and presents the best opportunity for employment creation for tens of millions of people in the years to come. Further, this is the only sector after agriculture where relatively less skilled or even unskilled workers can also make a living through direct or indirect association with the sector.
Hence, any threat to this employment creation potential of this sector—especially when India suffers a major deficit in creating jobs or self-employment opportunities—has to be pragmatically analyzed.
With an increase in flow of FDI, there is a possibility of significant rise in demand for professionals with right skills, and in addition, there would be a need for the trainers and training institutions also. Though there are training institutions in India for retail, the big challenge has been to develop the expected level of learning initiative as there are not enough teachers with practical understanding of changing retail landscape with the upsurge of e-commerce and growing tendency of retailers to embrace hybrid models and Omni-channel strategy.
This gap can be filled by retail schools hiring part-time (visiting) high-standard retail professionals and also by getting professors and trainers to get exposed to practical aspects of retailing. Retail organizations can also set up centers of excellence to build relevant HR strategies and for training the trainers.
There is a need for setting up niche training institutes focused on retail and business schools and degree colleges too to explore this huge business opportunity by offering specialized courses or value-added programs in the subject area. Strategic collaborations between academia and retail industry can also be carved out to bridge the talent gap by providing low-cost access to skill development for retail with employers’ need at the heart of the curriculum.
Importance of Indian Retail Market for the International Players:
The Indian retail sector has come off age and has gone through major transformation over the last decade with a considerable shift toward organized retailing. With over 92% business coming from the fragmented unorganized sector, such as traditional family-run mom-and- pop stores and corner stores, the Indian retail sector offers huge potential for growth and consolidation.
In India, the consumer market has hit a tipping point, and when we try to position at scale, India is the biggest market next to China. We have 100 million-plus consumers with a single-law ecosystem, a single currency, and while also relatively low on technology adoption. This is driving the investor ecosystem, and those who missed the boat in China are looking to capture the market in India.
A.T. Kearney, a US-based global management consulting firm, has ranked India as the fourth most attractive nation for retail investment among 30 flourishing markets. Favorable demographics, increasing urbanization, increasing number of nuclear families, rising affluence amid consumers, growing preference for branded products, and higher aspirations are other factors that will drive retail consumption in India.
Union Minister of Commerce and Industry, Government of India, has stressed on India building a culture of branding and marketing its products to the rest of the world. The ministry is also willing to take steps to start a free trade agreement (FTA) with the European Union (EU).
i. 100% FDI in single-brand retail
ii. 51% FDI in multi-brand retail (with the exception of multi-brand retailing of processed food products that are produced and manufactured in India)
iii. Liberalization policy of allowing 100% overseas capital in multi-brand processed food retailing through approval from the FIPB
i. In the case of single-brand retailing, proposals involving FDI beyond 51% stipulate mandatory 30% of sourcing from India, “preferably” from MSMEs, village and cottage industries, artisans, and craftsmen.
ii. Out of the first US$100 billion investment—50% should be utilized for back-end infrastructure.
iii. In the case of multi-brand retailing of processed food products, a foreign retailer is mandated to procure 100% of raw materials from domestic sources to be eligible to bring in 100% FDI. Hence, this is applicable as long as the food products are sourced and manufactured within India and subject to the approval from the FIPB.
Expected High Growth Rate Categories:
i. Apparel retailing
ii. Luxury retailing
iii. Food and grocery retailing
The Government of India has taken various initiatives to improve the retail industry in India.
Some of these initiatives are:
i. The FIPB has cleared five retail proposals from companies such as Bestseller, Puma SE, and Flemingo. Additionally, the board cleared three 100% single-brand retail proposals worth US$35.77 million, suggesting renewed interest in India’s growing retail market.
ii. IKEA has entered into a memorandum of understanding (MoU) with the Government of Telangana to set up its first store in India at Hyderabad. The Swedish home furnishing retailer has announced the purchase of its first land parcel to build retail stores in Hyderabad.
The IKEA Group is the first major single-brand retailer to get FDI approval in India and plans to open several stores in Delhi NCR, Hyderabad, Karnataka, and Maharashtra. IKEA retail outlets have a standard design, and each location entails an investment of over Rs500 crore.
iii. The Government of India is also in the final phase of talks with the states for the GST Bill to be implemented. This bill is seen as a key to facilitating industrial growth and improving the business climate in the country.
(Government of India has proposed GST under which taxes on interstate supply of goods and services would go to the consuming state. Once implemented, it will simplify the supply chain and bring down cost/price. The GST was originally proposed to be introduced with effect from April 2010 but yet to be rolled out. Difference in opinion among states, insistence of states on commitment of the federal government to compensate for possible revenue losses, coverage of specific products, and procedural delays together with consensus on the Constitutional Amendment Bill are the major impediments that are delaying the introduction of GST in the country.)
IKEA Group is looking toward India as a promising market. The Swedish retailer is exploring opportunity to source, retail, conduct CSR initiatives through IKEA Foundation and empower social entrepreneurs through next-generation projects. IKEA has been sourcing from India for the last 28 years and planning to double its sourcing volumes by 2020. By all these initiatives, IKEA is essentially in the process to bring a unique shopping experience through their inspiring stores offering affordable home furnishing products.
Following IKEA, another Swedish chain, H&M, has made a big-bang entry and opened its first store in the country at Select City walk Mall, Delhi, in October 2015. Its traditional rival, Zara, which is another European (Spain-based) fast fashion brand, entered Indian retail landscape through the JV with Tata Group’s Trent. Globally, H&M and Zara are competing for the first position.
While H&M has moved into Zara’s domain of fast fashion by churning out new styles and bringing them to the stores in record time, Zara has responded by creating an affordable line to match H&M’s price points.
Gap, one of the world largest fashion brand by sales, entered India in May 2015. Zara has become the first brand in India to cross US$100 million sales mark. In North America, both H&M and Inditex’s Zara are giving tough fight to the US-based Gap.
Along with India, the H&M is also expanding its presence in China and USA. Once a top fashion retailer for teenagers and young adults, Gap’s position and popularity has been challenged by Zara and H&M, which offer fast fashion and trendy cloths for less.
In its international expansion spree, H&M is also focused on e-tailing and has gone online in Romania, Poland, Portugal, the Czech Republic, Hungary, Slovakia, Belgium, and Bulgaria, among others.
Besides this, the Indian luxury consumer landscape is witnessing strong evolutionary undercurrents that are reshaping the consumer profile and the way luxury players operate in the space. Several luxury brands such as Gucci, LVMH, Jimmy Choo, and Gap are increasing their presence in the luxury malls, high streets, and airports.
Though these players continue to expand their presence cautiously, this is attributed to the growing sense of buoyancy and optimism about the future potential of the Indian luxury market supported by favorable regulatory environment and FDI rules. Liberalization of FDI policy in retail sector could further provide impetus to the entry of large international retailers.
The first movers are expected to be international retailers in the single-brand retail across the categories such as fashion/apparel, luxury watches and shoes, followed by international multi-brand retailers in categories across food, grocery, and home furnishing, where there are the large domestic counterparts who are keen to look at JVs and tie-ups.
15. Challenges of Retailing:
Growth of organised retail in India is affected due to following limitations:
1. Poor Logistic and Infrastructure:
Well-developed transport and communication, facility of warehousing are pre-requisite for the growth of organised retail. India has poor infrastructure, road connectivity between rural and market centers is not developed. Warehouse facility is poor and it is dismal in case of cold storage.
Due to poor warehousing, large amount agricultural products are damaged, that neither benefits consumer or farmer. Banking and insurance is growing but growth is not enough to cover the rural India which is the supplier of inputs and raw- materials for retail industry.
2. Low Per Capita Income:
Around 30% of Indian Population in middle and rich income category. Rest 70% is poor, approximately 30% is classified as below poverty line i.e., they do not have income to buy a day’s meal. People in rural India lack liquidity; they do not have adequate cash to enjoy luxuries.
Organised retail will have limited scope of growth when large percentage of population is kept outside the system Indian economy is growing at 6% (GDP) at this level of GDP touch poverty cannot be removed. GDR should constantly touch 10% to ensure faster economic growth, that in turn increase income levels of people and help for better consumption habits.
3. Complicated Tax Regime:
Tax regime is complicated. There is no unified and single system. Although VAT has come into force, still every state has its own system of taxation. Tax rate is high and there is complication in complying tax formalities. These are creating problems for promoters who want to promote a large retail outlet. It becomes further complicated for an MNC that wants to promote organised retail.
4. FDI Policies:
India needs huge Investment in Retail Logistics like Warehouse, Transportation and Management. It is not only money but also necessary technology that can only come in the form of FDI (Foreign direct investment) Politicians and policy makers are not unanimous for entry of FDI in retail sector.
Some section say FDI in retail will kill small retailer and other says growth in retail infrastructure is possible through FDI only. There is confusion in the states regarding 100% FDI in retail, FDI in multi brand and single brand unless clear policies are laid down at the center and state, growth of organised retail is difficult.
5. Education and Training:
Organised retail is described as semi hospitability Industry. A Customer must be well treated to ensure repeat sale. (A study says that labour productivity in Indian retail sector is only 6% of its counterpart in America). CRM that is customer relationship management can ensure systematic growth of organised retail.
The salesmen who come in personal touch with customer must have the art of managing and satisfying the customer. There are no adequate number of institutions in India that educate and train people to handle customers at retail.
6. Real Estate Prices:
Real estate prices in India for land and building is exorbitant cities like Mumbai, Delhi and Bangalore have high land value. Since organised retail needs large area for amenities like parking, amusement and also to accommodate big building, major portion of investment is tied up in land and building. This may increase cost of operation. It may be difficult to operate the store economically and profitably.
16. Steps Necessary to Promote Organised Retail:
Economic development Growth of India is dependent on promotion of organised retail. Organised retail has benefits like increased living standards, employment opportunity and better price to farmers.
This necessitates to undertake following measures or steps to strengthen organised retail movement:
Foreign Direct Investment and foreign capital is its major initiative needed to strengthen the organised retail. FDI can bring better technology and managerial skills needed to organise and promote the retail on large scale. India is scarce of capital and adequate technology that is necessary to promote organised retail.
Allowing the FDI to take part in multi brand and single brand products and its entry into every range of city i.e., ‘A and B’ Category cities like Mumbai, Delhi, Bangalore and ‘C’; Category cities like Hubli – Dharwad Davangeri Mysore etc., and in every part of India will bring necessary capital, money men machine and management idea i.e., basic to promote organised retail.
2. Development of Infrastructure:
Development of Infrastructure villages and towns provide raw material and inputs necessary for development of retail. The connectivity between rural and urban centers is necessary that calls for better roads and communication. Warehousing is another area that can create time and place utility and increase value of manufactured goods.
India does not have problem with production, lack storage space is deteriorating and damaging products. Creation of capacity in storage particularly cold storage at affordable cost can help for both farmer and retailer. Along with this facility of easy and quick finance, insurance can encourage the promotion of retail industry.
3. Education and Training:
Retail sector has potential to offer employment opportunities in different area connected with the industry. Qualified staff is necessary to manage activities connected with retailing and also in the areas of Warehousing, Financing Banking and Insurance. Retail Sector can provide adequate employment in that area provided qualified and trained staff is available.
India does not have educational and training schools that can produce qualified people to handle operations connected with the area Retail education should be offered in schools and colleges, Certificate, Diploma and Degree courses in the area along with the adequate training institutes can help to get competent staff to manage affairs of retail sector.
4. Provision of Real Estate:
Organised retail requires large area of land and building specially designed for retail operations. Land value in India is very high, buildings are not specifically designed to undertake retail activities. They are located in large buildings that are like big warehouse.
This may not provide the required ambience, comfort and convenience necessary in retail shopping Government should initiate steps to ear mark separate land for retail houses (like done in case of Industries). Necessary steps should be undertaken to create buildings complex that can house all departments. Facilities of retail at proper places to give comfort and satisfaction to visitors.
5. Educate People in Consumption Habits:
People of India do not have healthy consumption habits. Basically, they do not want to spend money, they believe in saving they spend on gold jewellery, invest in real estate (due to which their prices are rising). Healthy consumption habits must be promoted. People should be educated to spend on the items that can give them satisfaction without compromising on quality and health.
Food on the roadside, cheap garments and jewellery, un-standard, electronic items may be available at cheap price but it will affect health, disregards safety and may be dangerous. To save few rupees, we may be compromising with quality and durability. People must be educated through media, to cultivate healthy consumption habits and such products must be made available through organised retail system.