EVOLUTION & HISTORY DEMAND & SUPPLY DRIVERS MAJOR RETAILING STORES KEY RATIOS & TERMS RETAIL PRICING TRANSFER MECHANISM TOP 10 RETAILERS RETAIL INDUSTRY IN INDIA FDI POLICY OF RETAIL IN INDIA
The retail industry is responsible for the distribution of finished products to the public. This sector comprises of general retailers, departmental stores, specialty stores and discount stores. The retail industry emerged in the US in the eighteenth century. Specialty stores were developed only in those areas that had a population of above 5,000. Supermarkets flourished in the US and Canada with the growth of suburbs after World War II. The activities of the retail industry can be broadly classified into- 1. Personal goods store retailing and 2. Non-store retailing. Personal goods store retailing can be classified into Hard Goods(electronics, furniture) and Soft Goods(Apparel retailing). Non-store retailing can be food retailing and automotive services.
The major demand drivers of the retail industry are:1. Interest2. Population3. Employment4. Personal income5. Individual debt The supply drivers include:1. Competitors2. Size3. Cost of the factors of production
Department stores - very large stores offering a huge assortment of "soft" and "hard goods; often bear a resemblance to a collection of specialty stores. A retailer of such store carries variety of categories and has broad assortment at average price. They offer considerable customer service. Discount stores - tend to offer a wide array of products and services, but they compete mainly on price offers extensive assortment of merchandise at affordable and cut-rate prices. Normally retailers sell less fashion-oriented brands. Supermarkets - sell mostly food products. Variety stores - these offer extremely low-cost goods, with limited selection. Specialty stores: A typical speciality store gives attention to a particular category and provides high level of service to the customers. A pet store that specializes in selling dog food would be regarded as a specialty store. However, branded stores also come under this format. For example if a customer visits a Reebok or Gap store then they find just Reebok and Gap products in the respective stores.
General store: a rural store that supplies the main needs for the local community. Convenience stores: is essentially found in residential areas. They provide limited amount of merchandise at more than average prices with a speedy checkout. This store is ideal for emergency and immediate purchases. Hypermarkets: provides variety and huge volumes of exclusive merchandise at low margins. The operating cost is comparatively less than other retail formats. They may adopt a Hi-Lo or an EDLP strategy for pricing. The hypermarkets can be anywhere between 20,000 and 40,000 square feet (3,700 m2). Example: SPAR hypermarket. Malls: has a range of retail shops at a single outlet. They endow with products, food and entertainment under a roof. Vending Machines: This is an automated piece of equipment wherein customers can drop in the money in machine and acquire the products.
KEY RATIOS AND TERMS Same Store Sales: Used when analyzing individual retailers. It compares sales in stores that have been open for a year or more. This allows investors to compare what proportion of new sales has come from sales growth compared to the opening of new stores. It is also known as comps. Sales per Square Foot: Sales Square Footage Inventory Turnover: This ratio shows how many times the inventory of a firm is sold and replaced over a specific period. Generally calculated as: Sales Inventory Consumer Confidence Index: The Consumer Confidence Index (CCI) is put out by the Consumer Confidence Board around the middle of each month. The Consumer Confidence Survey is based on a sample of 5,000 U.S. households and is considered to be one of the most accurate indicators of confidence. Increasing confidence means more spending and borrowing for consumers.
RETAIL PRICING Cost Plus Pricing- This involves adding a mark up amount (or percentage) to the retailers cost. Suggested Retail Pricing- This simply involves charging the amount suggested by the manufacturer and usually printed on the product by the manufacturer. In Western countries, retail prices are often called psychological prices or odd prices. Often prices are fixed and displayed on signs or labels. Alternatively, when prices are not clearly displayed, there can be price discrimination, where the sale price is dependent upon who the customer is. Another example would be the practice of discounting for youths, students, or senior citizens.
TRANSFER MECHANISM There are several ways in which consumers can receive goods from a retailer:• Counter Service- where goods are out of reach of buyers and must be obtained from the seller. This type of retail is common for small expensive items (e.g. jewellery) and controlled items like medicine and liquor. It was common before the 1900s in the United States and is more common in certain countries like India.• Delivery- where goods are shipped directly to consumers homes or workplaces.• Door-to-door sales- where the salesperson sometimes travels with the goods for sale.• Self-service- where goods may be handled and examined prior to purchase.
TOP 10 RETAILERSThese are the top 10 retailers of the world:1. WAL-MART(U.S.A)2. CARREFOUR(FRANCE)3. KROGER(U.S.A)4. METRO AG(GERMANY)5. HOME DEPOT(U.S.A)6. MCKESSON CORP(U.S.A)7. ITM ENTERPRISES(FRANCE)8. SEARS(U.S.A)9. KMART CORPORATION(U.S.A)10. TARGET CORPORATION(U.S.A)
• Brief description: Offers a full time supermarket and a limited assortment of general merchandise with operations in three business segments: Wal-Mart U.S., International and Sam’s Club.• Operational Format: Cash & Carry/Warehouse Club, Discount Department Store, Hypermarket/Supercenter/Superstore, supermarket and online retail.• Financials Revenue: $417 billion USD, year-over-year change: 0.95% Operating profit: $24.8 billion USD, year-over-year change: 5.1% Net income: $14.8 billion USD, year-over-year change: 7.0%• Expected capital expenditure (2011): $3.9 billion USD• Geographic coverage (2010): US- 75%; Rest of the world- 25%• Future plans: Expects to add more than 600 stores during fiscal year 2011.
• Brief description: Offers a range of food and non-food products. Carrefour SAs supermarket chains include, among others, Champion and Norte brands, which primarily offer food, clothing and household goods.• Operational Format: Cash & Carry/Warehouse Club, Convenience/Forecourt Store, Discount Store, hypermarket, Supercenter/Superstore, Supermarket and online retail store.• Financials Revenue: $122 billion USD, year-over-year change: (1.14%) Operating profit: $2.4 billion USD, year-over-year change: (39.0%) Net income: $650 million USD, year-over-year change: (74.2%)• Expected capital expenditure (2010): NA• Geographic coverage (2009):France: 45%; Europe(except France): 33%; Latin America: 14%; Asia: 8%• Future plans: In India, it is expected to set up 150 hypermarkets while in the global level it is planning to setup 50 supermarkets under the Carrefour Market banner and 30 convenience stores under the Carrefour express banner.
• Brief description: Distributes pharmaceutical products, medical surgical supplies, healthcare and beauty products and develops software to facilitate health enterprise. Also offers analytic, care management and patient solutions for payers.• Operational Format: Drugs/medical-surgical equipment distribution.• Financials Revenue: $109 billion USD, year-over-year change: 1.94% Operating profit: $2 billion USD, year-over-year change: 17.7% Net income: $1.3 billion USD, year-over-year change: 53.5%• Expected capital expenditure (2011): $81 million USD• Geographic coverage (2010): US: 91%; Rest of the world: 9%• Future plans: Planning to expand through acquisitions.
RETAIL INDUSTRY IN INDIA The retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. AT Kearney, the well-known international management consultancy, recently identified India as the ‘second most attractive retail destination’ globally from among thirty emergent markets. The retail industry had a share of 22% in the GDP of the country in 2010. The retail industry in the country is growing at a great pace and is expected to reach US 1.3 trillion dollars.
MAJOR RETAILERS IN INDIA Pantaloon: It is one of the biggest retailers in India with more than 450 stores across the country. Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across the country. Its growing at an enviable pace and is expected to reach 30 million sq. ft by the year 2010. In 2001, Pantaloon launched countrys first hypermarket ‘Big Bazaar’. Tata Group: This is another major player in Indian retail industry
RPG Group: RPG Group is one of the earlier entrants in the Indian retail market, when it came into food & grocery retailing in 1996 with its retail Food world stores. Later it also opened the pharmacy and Beauty care outlets ‘health & glow’. Reliance: Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh stores and Reliance Mart are quite popular in the Indian retail market. Its expecting its sales to reach ` 90,000 crores by 2010. AV Birla Group: AV Birla Group has a
CHALLENGES FACED BY THEINDIAN RETAIL INDUSTRY Challenges facing Indian retail industry are: The tax structure in India favours small retail business Lack of adequate infrastructure facilities High cost of real estate Dissimilarity in consumer groups Restrictions in Foreign Direct Investment Shortage of retail study options Shortage of trained manpower
FDI WITH REGARD TO RETAILING IN INDIA The specific guidelines for FDI with regard to the conduct of trading activities in India are: a) FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. b) FDI up to 51 % with prior Government approval for retail trade of „Single Brand‟ products. c) FDI is not permitted in Multi Brand Retailing in India.
ENTRY OPTIONS FOR FOREIGN PLAYERS1. Franchise Agreements : It is an easiest track to come in the Indian market. In franchising and commission agents‟ services, FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. This is a most usual mode for entrance of quick food bondage opposite a world. Apart from quick food bondage identical to Pizza Hut, players such as Lactose, Mango, Nike as good as Marks as good as Spencer, have entered Indian marketplace by this route.2. Cash And Carry Wholesale Trading : 100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers. The wholesaler deals only with smaller retailers and not Consumers. Metro AG of Germany was the first significant global player to enter India through this route.3. Strategic Licensing Agreements : Some foreign brands give exclusive licenses and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchisees.
4. Manufacturing and Wholly Owned Subsidiaries: The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian companies and are, therefore, allowed to do retail. These companies have been authorized to sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlets, etc. For instance, Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary, Nike India Private Limited.5. FDI in Single Brand Retail: The Government has not categorically defined the meaning of “Single Brand” anywhere neither in any of its circulars nor any notifications. In single-brand retail, FDI up to 51 per cent is allowed, subject to Foreign Investment Promotion Board (FIPB) approval and subject to the conditions mentioned in Press Note 3 that (a) only single brand products would be sold (i.e., retail of goods of multi-brand even if produced by the same manufacturer would not be allowed), (b) products should be sold under the same brand internationally, (c) single-brand product retail would only cover products which are branded during manufacturing and (d) any addition to product categories to be sold under “single-brand” would require fresh approval from the government.