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Executive Summary
 Growth in Indian organised retail has been driven by the country’s economic fundamentals over the past few years, including an increase in the proportion of upper income households, rising consumption expenditure and greater use of credit cards.
 Consumers are showing a growing preference for Organised retail, resulting in increased penetration, from around 1% of total retail consumption in 1999 to nearly 6% in 2009 (or some INR350billion)1.
 Organised retail continues to be focused on food & groceries and apparel. Key players have continued to customise their formats to better service their target markets. For example, the hypermarket format has rapidly gained popularity and is likely to expand the fastest, even though largely confined to India’s bigger cities.
 Competition in the supermarkets segment is likely to intensify, squeezing margins. Gaining critical mass and promoting private labels will be critical to profitability. The department store format is likely to show strong growth, again largely restricted to the larger cities.
 Speciality retail is also evolving in categories such as durables and jewellery, but remains in its infancy.
 The financial flexibility of larger retailers has improved significantly over the past two years with new financing sources becoming available. The industry is thus gaining acceptance within the investor community.
 However, the pace of expansion has resulted in negative free cash flows for most retailers as internal accruals have proved insufficient to meet expansion plans.
 Retailers are using a combination of better bargaining power with suppliers, investments in supply-chain infrastructure to improve inventory management and the promotion of private labels to enhance margins.
 Larger retailers like Shopper’s Stop Ltd (“Shopper’s Stop”) and Pantaloon Retail India Limited (“PRL”), Trent, RPG have realized operational efficiencies, as reflected in their financial performance.
 The rapid development of malls in India over the past few years in the major cities is expected to continue in the medium term and benefit retailers by increasing the availability of retail-focused real estate.
 Sector growth prospects are likely to be limited by factors such as restrictions on FDI (foreign direct investment), the lack of a uniform tax structure, increasing pressure on infrastructure in key consumer markets and a shortage of quality real estate.
 However, the government has attempted to alleviate these issues, proposing various regulatory changes (e.g. VAT legislation and FDI specifically for construction), which should prove beneficial in the medium to long term.
 The report covers Indian structure of Discount Stores and key trends in the industry. Analysis of Retailing management, Technical Aspects and Trends used in promotion are extensively covered.
 Also the Michael porter’s 5-forces analysis, SWOT analysis and analysis of value drivers for Big Shopping Malls will throw the details and business dynamics of major hypermarket retailers in India.
1. RETAILING - INTRODUCTION
1.1 Retailing – A Conceptual Overview
Definition of Retailer
Retailer is a Person or Agent or Agency or Company or Organization who is instrumental in reaching the Goods or Merchandise or Services to the End User or Ultimate Consumer.
What is retailing?
The word "Retail" originates from a French-Italian word.
Retailer - someone who cuts off or sheds a small piece from something. Retailing is the set of activities that markets products or services to final consumers for their own personal or household use. It does this by organizing their availability on a relatively large scale and supplying them to customers on a relatively small scale. Retailer is a Person or Agent or Agency or Company or Organization who is instrumental in reaching the Goods or Merchandise or Services to the End User or Ultimate consumer.
Traditional Retailing Process
1.2 Why is Retailing Important?
As the final page link between consumers and manufacturers, retailers are a vital part of the business world. Retailers add value to products by making it easier for manufactures to sell and consumers to buy. It would be very costly and time consuming for you to locate, contact and make a purchase from the manufacturer every time you wanted to buy a candy bar, a sweater or a bar of soap. Similarly, it would be very costly for the manufactures of these products to locate and distribute them to consumers individually. By bringing multitudes of manufacturers and consumers together at a single point, retailers make it possible for products to be sold, and, consequently, business to be done.
Retailers also provide services that make it less risky and more fun to buy products. They have salespeople on hand who can answer questions, may offer credit, and display products so that consumers know what is available and can see it before buying. In addition, retailers may provide many extra services, from personal shopping to gift wrapping to delivery, that increase the value of products and services to consumers.
According to the National Retail Federation, 1 in 5 American workers is employed in the retail industry. In India also the retail sector is the second largest provider of employment. It provides 8% of the total employment in India
Retailing involves various activities of shopping, such as purchasing through the internet, dealing in financial services, eating at the restaurant, visiting the beauty parlor etc. This indicates the complexity involved in retail marketing operation. Due to the constant charges occurring at the market place, the term retailing also has undergone changes. Nevertheless, Retailing can be referred to all activities involved in the marketing and distribution of goods and services.
Thus, retailing the set of business activities which adds value to product and services sold to consumers for the personal of family use.
Retailing is not only important aspect of the economic structure but very much part of our lives, although trading of goods have been in existence since the olden days, it is only in the recent past that buying and selling of goods have become more of formal brand dominated activity. In fact, today retailing is evolving into a global, high-tech business. Nevertheless, the traditional forms of independently owned small business co-exist along with the organized retailers like department stores, especially stores, shopping complexes, malls, large scale multiple chain etc…
Organized retailing has emerged in a big way since 2000 onwards and with it; we are witnessing the emergence of new form of retailing. The retailers’ market can be segmented on the basis of various retail formats to concentrate or focus on the needs of particular consumer group. Ultimately, this has led to the development of a very complex retail environment. With the increase in competition in the retailing market, retailers are seeking new consumer groups and new way to tap the market. Some of the important reasons for the growth in the consumer demand for retail outlets could be that there is a growing middle class of consumers with high disposable income, rise in consumer aspiration level for global lifestyle due to media exposure etc.
1.3 Retailing marketing mix in brief
The elements of the marketing mix encompass the facts in the table below. The table depicts consumer service as the crux of the whole activity.
Retail marketing mix: the 7P’s
Product Merchandise, Range, Quality Level, Brand Name, Service Line, Warranty, After Sale Services
Price Value, Cost, Discounts, Allowances, Commissions, Payment Terms, Gross Margins, Profit, Business Expenses
Place Location, Supply Channel, Convenience, Channel Relationships, Logistics, Transport, Warehousing
Promotion Advertising, Personal Selling, Sales Promotion, Publicity, Public Relation
People Personal Training, Commitment, Incentives, Appearance, Inter Personal Behavior, Attitudes, Relationship Marketing
Physical Evidence Environment, Furnishing, Color, Noise Level, Facilitating Goods
Process Policies, Procedures, Mechanization, Employee Discretion, Flow Of Activities
(Adapted from Retail marketing management, David Gilbert)
The retail marketing mix has to be combined across its different parts so that each aspects of the mix reinforce and reflects the other part of the mix. This will create a synergy effect where the whole becomes greater than some of the parts. The combined mix has to be positioned so as to create a clear proposition for the customer.
1.4 Characteristics of Retail Industry
The spectrum of Retail Industry is quite wide in nature. Retail serves consumers through a small grocery store to a huge departmental store. Retail Industry is heavily dependent on consumer spending. In fact 2/3 of US GDP is coming from Retail business. Retail is the second largest industry in US. It has employed 23 Million people. During economic slow down consumer spending decreases and it poses threat to the Retail industry. Consumers’ confidence is one of the key drivers of the industry.
Decline in Small Stores
It is observed that small independently owned stores are gradually loosing their foothold in the market place. These stores are generally called “Mom and Pop” stores and they offer limited merchandise to the consumer. These stores are facing stiff competition from the large departmental stores or superstores and in this process they are closing down their shutters. In many locations the arrival of a superstore has forced nearby independents out of business. In the book selling business Barnes & Noble superstore or Borders Books and music usually puts smaller bookstores out of business. This is a major characteristic prevailing worldwide. But it is also true that many small independent outlets still thrive by knowing their customers better and providing them with more personalized service.
Internet and E-Commerce
Internet the ubiquitous medium has opened a new avenue in front of the Retailers. It has offered an opportunity to the consumers to shop from the home. As it stands today overall Retail sales through internet may not be that significant but gradually it is gaining popularity amongst consumers. Amazon.com is the company which is very successful in this E commerce domain.
Repositioning of Departmental Stores
The appeal of big departmental store is in the wane and they are trying to reposition themselves. They are repositioning their product lines to survive in this highly competitive market eg. A departmental store which is supplying general merchandise to the consumer is changing them to a giant apparel store.
Rise in Discount stores
Supremacy of Discount store is also one of the distinct characteristics of Retail Industry today. Discount stores offer money back guarantee, every day low price etc to lure customers. They also provide floor help and easy access to the merchandise to facilitate the consumer. Wal- Mart the worlds largest Retailer comes under this category of Retail store.
Category Killers
There are Retailers who actually concentrate on one particular product category and grab a lion’s share of that market and outperform their competitors. They are called Category Killers. Toys R Us (Toy market ), Home Depot (Home Improvement) , Staples (Office Supplies) are the examples of such Retailers who have grabbed a major market share in that product category and they have forced a reduction in the number of players in that product segment. This is also a distinct trend observed in the current Retail market. Ten years back there were number of players in the toy market and no one was controlling more than 5% of market share but now the number of players has come down to six and Toys R Us is enjoying 20% market share.
Direct Marketing
With the advancement of technology Retailers have found another sales channel through which they can reach the consumer and this is direct marketing. Direct marketing has their root in direct mail and catalog marketing (Land’s End and LL Bean). It includes telemarketing, television direct response marketing. (Home shopping network, QVC) Although an overwhelming majority of goods and services is sold through stores, non store Retailing is also growing at a faster rate. Direct selling is $9 Billion industries with around 600 companies selling door to door. Avon, Electrolux, Southwestern Company, Tupperware and Mary key cosmetics are the examples who have adopted this strategy successfully.
Demographic Changes
Retail industry is impacted by the demographic changes. As a result of this change taste of the consumer is undergoing a change and it creates a demand for certain products. World wide Retailers are keeping a close watch on this change and they are trying to realign themselves with this change.
Mergers and Acquisitions
Retailers who want to dominate the market place have adopted the strategy of mergers and acquisitions. This is also one of the distinct trends in Global Retail Industry today. Instead of achieving an organic growth Retailers can grow significantly with the help of mergers and acquisitions.
This helps them to occupy more shelf space in the market place. As the volume increases they are establishing better control over their suppliers and they are reducing the procurement cost and in that way they are boosting their profitability. This is driven by the economic growth factors, size, revenue pattern and the customer demand. Sears and Land’s End merger is one of the significant mergers which have happened in recent times. Another important example would be Nikes acquisition of Hurley, a well known surfing brand. This has helped Nike to enter in to a new market segment.
1.5 Operational Issues in Organized Retailing
In order to survive in this Industry, which is driven by the consumer demand Retailers need to successfully counter the operational issues. If the Retailers fail to diagnose and address those operational issues their existence will be jeopardized.
Supply Chain Management and Logistics
The process of getting goods to the customer has been traditionally known as Physical Distribution. Physical Distribution starts at the factory and it ends at the store. Nowadays the definition of Physical distribution is expanded and a broader concept has come which is Supply Chain Management. Ideally Supply Chain Management encompasses the material flow from supplier’s suppliers to the final destination. Retailers need to have a grip on that whole chain in order to control the procurement and delivery cost. This will help them to choose the right supplier for the merchandise. Retailers need to come out of the constricted view about the supply chain which is viewing the market as a point to point destination; instead they need to consider the holistic picture which is a part of Market Logistics. Market Logistics involves physical flow of materials from point of origin to the point where it meets the customer’s requirement.
This Demand Chain orientation can help them to cut down the procurement cost to a great extent. IKEA the global furniture retailing giant has successfully addressed this issue and they are able to sell quality furniture at a much lower cost than his competitors.
Pricing
In Retailing environment pricing has become a burning issue to the retailers. Customer’s expectation from a Retail store has become very high and customers are looking for more and more bargain prices. This situation can be referred as Price drought. Price deflation is taking hold in the Retail environment and any reduction in volume is complicating the scenario further. This trend is quite evident in Apparel and Consumer goods market. Pricing seems to be a key positioning factor and must be decided in relation to the target market, Assortment mix and competition. Strategic pricing has become an important strategic tool to the retailers. Airlines
Industry started this strategic pricing technique where the underlying philosophy is not all consumers want a particular product at the same time and the degree of demand will also vary. With this idea in mind different consumers are charged different prices for the same product or service.
Retailers need to adopt the right pricing tactics in this environment of fierce competition. Retail stores markdown the price for some items to attract people, this is called traffic building. They also run storewide reduction sell.
It is observed that a shoe Retail outlet sells 50% of the product at normal mark up, 25% of the product at 40% mark up and remaining 25% at cost. Some Retailers have done away with sales pricing and they are resorting to everyday low price (EDLP). It leads to lower advertising cost, greater pricing stability and higher Retail profits. Wal- Mart uses this kind of pricing strategy.