Retail project


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Retail project

  1. 1. EXECUTIVE SUMMARY Retailing consists of all activities involved in selling goods and services to consumersfor their personal, family or household use. It covers sales of goods ranging fromautomobiles to apparel and food products and services ranging from hair cutting to air traveland computer education. Sales of goods to intermediaries who resell to retailers or sales tomanufacturers are not considered a retail activity. Retailing can be examined from many perspectives. A manufacturer of white goodslike washing machine and refrigerators has many options to reach out to consumers. It cansell through dealers, the company showrooms (Sony World, Videocon Plaza) orhypermarkets (Big Bazaar). The retail sector in India is highly fragmented with organized retail contributing toonly 2% of total retail sales. The retail sector in developed countries was also highlyfragmented at the beginning of the last century but the emergence of large chains like WalMart, Sears, and Mc Donald’s led to rapid growth of organized retail and growingconsolidation of the retail industry in the developed countries. Today, in India we see a risein the purchasing power and growth of a middle class which follows the western lifestyle.Hence, conditions are conducive for the rapid growth of organized retail in India. Organized retail is growing rapidly and we see the emergence of large organizedretail chains like Shoppers’ Stop, LifeStyle and Westside. We also find retail mallsmushrooming all over the country. The opportunities in retail industry in India will increasesince Indian retailing is on the threshold of a major change. However, with the rapid growth in organized retail and increased emphasis ofmanufacturers on understanding sales at the retail level, the study of retailing has becomeincreasingly relevant. -1-
  2. 2. OBJECTIVE OF PROJECT v To understand the concept of retailing. v To understand the role and relevance of retailing for business and economy. v To identify the activities associated with retailing v To understand the operational structures associated with retail organizations v Understanding consumer behaviour in retailing v Understanding the importance of store location for a retailer v To understand the nature of merchandise budgeting and unit planning v To understand the concept of relationship marketing and how does it apply to the retail sector. -2-
  3. 3. METHODOLOGY This project is the mixture of theoretical as well as practical knowledge. Also it containsideas and information imparted by the guide. The secondary data required for the project wascollected from various websites and books of reputed authors. The project started with sorting all the raw data and arranging them in perfect order. Toadd value to the project and to understand the practicality of retailing business, I have visitedvarious stores who are the best ones in retailing business. Further, to understand the consumers better, a field survey was also conducted to findout the tastes and preferences, purchasing habits, expectations of the consumers etc. Analysis ofthis primary data has been done to actually understand the survey in a better way. -3-
  4. 4. ORIGIN OF RETAILING Although retailing does not enjoy the status of an Industry, the sheer size thisbehemoth will develop into, is grabbing attention. The origin of retail in India dates back toancient times when the melas and mandis made heir presence felt. The changing socioeconomic patterns coupled with the consumption increase led to the emergence of theconvenience stores, which became a par of the civic planning. The next step was the commercial plazas, which comprised merely shops offering avariety of goods and services clubbed together. The inconveniences caused by lack ofparking place, toilets and maintenance, ushered in the entry big international brands openingtheir exclusive showrooms. The opening up of the economy only fueled this globalization.There are, however, certain bottlenecks as well; the scarcity of space, coupled with thestringent provisions of the Rent Control Act, act as a dissuasive factor for many players toinitiate operations in the main markets. This also explains why the Raheja’s forayed into theirretail venture- Shoppers’ Stop.CURRENT SCENARIO The Indian population is whooping 1 billion with 75% of the people living in villagesand small towns. It is only natural that the agricultural sector is the biggest employer with itscontribution to GDP pegged at 26.7%. Retail is India’s larges industry after Agriculture witharound 20% of the economically active population engaged in it and generation 10% of ourcountry’s GDP. The growth of the efficient small store culture can be attributed to the 6 millionvillages distributed across the length and breadth of the country. The 12 million retail outletsin India are the highest in the world, and cater to the purchase need of its pole. It isinteresting to note, that the Urban Population although just 25% of the total, is an astounding250 million in size and is growing at a healthy rate of 7% per annum. The chief driver of growth in the retail sector has been the consumer, with thespending increasing at an average of 11% per annum. The Core and the Lower middle haveincreased their share in the Growth. -4-
  5. 5. The Indian consumer’s shopping needs are and traditionally have been fulfilled byKirana sores (corner stores), Kiosks, street vendors, weekly bazaars and high-street shops forconsumer durables and luxury goods. To cater to this, each city developed its own identity and shopping cluster, forinstance in Pune there is MG Road, Bangalore has Brigade Road and Commercial Street,Delhi has Connaught Place, Karol Bagh and South Extension. India will have 358 shopping malls by 2007. Droves of middle-class Indians havebroken off their love of traditional stand-alone shops that have no ACs, organized parkinglots and other public amenities, according to a study by fashion magazine Image. At present (September 23, 2005), In India we have 96 malls, covering an area of 21.6million sq ft. And by year end the count will shoot up to 158 malls. It will cover 34 millionsq ft area. Currently estimated at $205 billion to grow to $400-500 million, over the next 2-3years. v Smaller cities will have about 12.8 million sq ft of mall space by 2007. v Ludhiana to account for 2.5 million sq ft. v Ahmedabad about 3.4 million sq ft. v Delhi and Mumbai now have maximum number of shopping centres. v Gurgoan saw the largest development in terms of retail outlet. v North region has 39% of India’s retail share. v East region has 10% of India’s retail share. v West region has 33% of India’s retail share. v South region has 18% of India’s retail share. v Government and co-operative sector is also making their steps in retailing. For example, Kendriya Bhandar, Apna Bazar, Mother Dairy, Super Bazar etc. -5-
  6. 6. MAJOR RETAILER SPACE HOLDERS IN INDIAORGANIZATION Area Sq. ftBata 10,00,000RPG 6,00,000Raymond 5,42,000Pantaloon/Big Bazaar 5,00,000Metro cash-n-carry 3,00,000Spencer 2,80,000LifeStyle 2,50,000Shoppers Stop 2,00,000Trent 2,00,000Globus 1,75,000Piramyd 1,50,000The 2nd Annual Images Retail Awards (September 22, 2005):- v Retail Face of the Year: Kishore Biyani, MD, Pantaloon Retail India Ltd. v Retail Destination of the year: Shoppers’ Stop v Retail Launch of the Year: Pantaloon Central. v Shopping Centre of the Year: Inorbit Mall v Retail Brand of the Year: Titan v Retail Concept of the Year: Reliance Truck Stop. v Retailer of the Year: Value Retailing: Big Bazar v Retailer of the Year: Catering Service: McDonald’s. v Retailer of the Year: Food & Grocery: Food Bazaar. v Retailer of the Year: Health & Beauty: VLCC. v Retailer of the Year: Entertainment: PVR. v Retailer of the Year: Department Store: Westside. v Retailer of the Year: Forecourt Retailing: Bharat Petroleum Corp. Ltd. v Retailer of the Year: Leisure: Crossword Bookstore. -6-
  7. 7. SWOT OF THE MARKETSTRENGTH1. Organized retailing at US$ 3.31 billion, growing at 8%.2. 2nd largest contributor to GDP after agriculture at 20%.3. Pattern of consumption changing along with shopping trends.4. A Growing population will translate to move consumers.5. Consumer spending increasing at 11% annually.6. Almost 25 million sq. ft. retail space available.7. Paradigm shift in shopping experience for consumers pulling in more people.8. Most of the entrants to organized retail come from 3 main categories, and have venturedinto retail as their business extension. v Real Estate Developers v Corporate Houses v Manufacturers/ExportersWEAKNESSES1. Shortage of quality retail spaces at affordable rates.2. Government regulations on development of real estate(Urban Land Ceiling Act)3. Need to provide Value for Money-squeezing margins4. Lack of industry status.5. Retail revolution restricted to 250 million people due to monolithic urban-rural divide.6. Footfalls not a clear indicator of sales as actual consumers lower in number.7. Lack of huge investments for expansion.OPPORTUNITIES1. Increasing urban population-more participants in retail revolution.2. Increase in consuming middle class population.3. Social factors like dual household income has enhanced spending power.4. Spends moving towards lifestyle products and esteem enhancing products.5. Availability of old industrial lands-prime real estate locked in sick industrial units. -7-
  8. 8. 6. Average grocery spends at 42% of monthly spends-presents a huge opportunity.7. Increase in use of credit cards.THREATS1. Rising lease/rental costs affecting project viability2. FDI restrictions in the retail sector3. Poor monsoons and low GDP Growth could affect consumer spending drastically.4. Archaic labour laws are a hindrance to providing 24/7 shopping experience5. Personalized service offered by Mom-&-Pop stores.6. Unavailability of qualified personnel to support exponential growth in retail.7. Differentiate taxation laws hindering expansion.RETAIL VIABILITYAs per the CII McKinsey report, based on a GDP growth rate of 6-7% per annum, by 2010the retail sector is expected to be US $ 300 Billion industry. Some of the major factorshindering the growth of this sector are as follows: v The non-industry structure and status v The lack of adequate infrastructure v FDI restrictions in this sector v The huge investments required in expanding their markets, v Problems associated with working Capital funding from lending Institutions. -8-
  9. 9. BIG BAZAAR: THE INDIAN WAL-MART Pantaloon Retail (India) Limited is today recognized as one of the poneers in thebusiness of organized retailing in the country with a turnover of over RS 400 crores in thefinancial year ending June 2003. The company is headquartered in Mumbai with zonaloffices at Kolkata, Bangalore and Gurgaon (Delhi). It has 4 kinds of stores; 14 PantaloonFamily Stores, 7 Big Bazaar discount hypermarkets, 6 Food Bazaar Stores with over 6.5 lakhsq ft retail space across Kolkata, Mumbai, Thane Pune, Hyderabad, Bangalore, Bagpur,Ahmedabad, Kanpur, Chennai and Gugaon (Delhi). Pantaloon Retail India Limited is the flagship company of the Pantaloon grouppromoted by Mr Kishore Biyani. It has been one of the pioneers in organized retailing inIndia. It began its retailing operations in India way back in 1987. Currently, it manufacturesand sells ready-made garments through its own retail outlets and two discounting stores. The company plans to diversify into the business of discounting in a big way, whichis targeted at the growing middle class segment. It has India’s second largest retail chain with17 retail outlets and two discounting stores branded as Big Bazaars across the country at anestimated retail space of 4,01,300 sq. ft. The company plans to double its retail space in thenext couple of years. Pantaloon has come up with an excellent revenue model, focusing on ‘value formoney’ segment. Pantaloon plans to target the upper middle and the middle class segment,which forms the large chunk of Indian population. This segment is very price conscious andalways looks out for value for money. Pantaloon successfully launched its discount store chain, which targets the large andgrowing upper-middle and middle class of Indian society. This is totally in contrast to theother organized retail players, which focus on high net-worth of individuals. Big Bazaar has strong own brand names in its portfolio across product categories. Thebrands include Pantaloon, John Miller and Bare. Higher percentage of ‘own brand’ salesimproves margins, thus reducing the breakeven level of sales. Big Bazaar has diversifiedfrom apparels to household items in its discount stores. This has enabled them to enlargetheir basket of offerings. -9-
  10. 10. RETAIL CONCEPT The distribution of consumer products begins with the producer and ends at theultimate consumer. Between the producer and the consumer there is a middleman---theretailer, who links the producers and the ultimate consumers. Retailing is defined as aconclusive set of activities or steps used to sell a product or a service to consumers for theirpersonal or family use. It is responsible for matching individual demands of the consumerwith supplies of all the manufacturers. The word ‘retail’ is derived from the French workretaillier, meaning ‘to cut a piece off’ or ‘to break bulk’. A retailer is a person, agent, agency, company, or organization which is instrumentalin reaching the goods, merchandise, or services to the ultimate consumer. Retailers performspecific activities such as anticipating customer’s wants, developing assortments of products,acquiring market information, and financing. A common assumption is that retailing involvesonly the sale of products in stores. However, it also includes the sale of services like thoseoffered at a restaurant, parlour, or by car rental agencies. The selling need not necessarilytake place through a store. Retailing encompasses selling through the mail, the Internet, door-to-door visits---any channel that could be used to approach the consumer. Whenmanufacturers like Dell computers sell directly to the consumer, they also perform theretailing function. Retailing has become such an intrinsic part of our everyday lives that it is often takenfor granted. The nations that have enjoyed the greatest economic and social progress havebeen those with a strong retail sector. Why has retailing become such a popular method ofconducting business? The answer lies in the benefits a vibrant retailing sector has to offer—an easier access to a variety of products, freedom of choice and higher levels of customerservice. As we all know, the ease of entry into retail business results in fierce competition andbetter value for customer. To enter retailing is easy and to fail is even easier. Therefore, inorder to survive in retailing, a firm must do a satisfactory job in its primary role i.e., cateringto customers. Retailers’ cost and profit vary depending on their type of operation and majorproduct line. Their profit is usually a small fraction of sales and is generally about 9-10%.Retail stores of different sizes face distinct challenges and their sales volume influences -10-
  11. 11. business opportunities, merchandise purchase policies, nature or promotion and expensecontrol measures. Over the last decade there have been sweeping changes in the general retailingbusiness. For instance, what was once a strictly made-to-order market for clothing has nowchanged into a ready-to-wear market. Flipping through a catalogue, picking the right colour,size, and type of clothing a person wanted to purchase and then waiting to have it sewn andshipped was the standard practice in the earlier days. By the turn of the century some retailersset up a storefront where people could browse, while new pieces were being sewn orcustomized in the back rooms. Almost all retail businesses have undergone a similartransition over the years.DRIVERS OF CHANGE IN RETAILING v Changing demographics and industry structure v Expanding computer technology v Emphasis on lower costs and prices v Emphasis on convenience and service v Focus on productivity v Added experimentation v Continuing growth of non-store retailing. In today’s competitive environment retailers have redefined their role in general, and inthe value chain in particular. Retailers act as gatekeepers who decide on which new productsshould find their way to the shelves of their stores. As a result, they have a strong say in thesuccess of the product or service launched by a business firm. kA product manager ofhousehold appliances claimed, ‘Marketers have to sell a new product several times, firstwithin the company, then to the retailer and finally to the user of the product.’ It is a well-established fact that manufacturers need to sill their products through retailformats that are compatible with their business strategy, brand image, and market profile inorder to ensure a competitive edge. The role of retailers in the present competitiveenvironment has gained attention from manufacturers because external parties such as marketintermediaries and supplying partners are becoming increasingly powerful. It is necessary for -11-
  12. 12. marketers of consumer products to identify the need and motivations of their partners in themarketing channel. This is especially true in the case or new products. The increasing numbers of product categories followed by multiple brands in eachcategory complicate decision-making for both manufacturers and market intermediaries.Retailers want of optimize sales within the limited shelf space, governed by their individualsales philosophy. Retailers undertake risk in selecting a portfolio of products or brands tooffer to their customers. Retailers have to make optimum selection of goods to be sold giventhe following major concerns: v Selling space available is relatively fixed and must return maximum profits. If such space is occupied by merchandise that is not moving, it will not result in profit. The retailer may have to resort to substantial price reductions in order to get rid of the unsold stock. v There is always the risk of non-performance in terms of quality, supplies etc., which in turn harms the image of the retail outlet. Retailing is a dynamic industry---constantly changing due to shifts in the needs of theconsumers and the growth of technology. Retail formats and companies that were unknownthree decades ago are now major forces in the economy. Therefore, the challenges for retailmanagers the world over are increasing---they must take decisions ranging from setting theprice of a bag of rice to setting up multimillion dollar stores in malls. Selecting targetmarkets, determining what merchandise and services to offer, negotiating with suppliers,training salespeople---these are just a few of the many functions that a retail manager has toperform on a perpetual basis. The world over retail business is dominated by smaller family run chain stores andregionally targeted stores but gradually more and more markets in the western world arebeing taken over by billion dollar multinational conglomerates, such as Wal-Mart, Sears,McDonald’s, Marks and Spencer. The larger retailers have managed to set up hugesupply/distribution chains, inventory management systems, financing pacts and wide-scalemarketing plans. In the backdrop of globalization, liberalization and highly aware customers,a retailer is required to make a conscious effort to position himself distinctively to face the -12-
  13. 13. competition. This is determined to a great extent by the retail mix strategy followed by acompany to sell its products. GLOBAL RETAIL-INDUSTRY-RELATED FACTS v Worldwide retail sales are estimated at US $7 trillion. v The top 200 largest retailers account for 30% of the worldwide demand. v The money spent on household consumption worldwide increased by 68% between 1980 and 1998. v Retail sales are generally driven by people’s ability (disposable income) and willingness ( consumer confidence ) to buy. v The 1998 UNDP Human Development Report points to the fact that global expenditures on advertising are ( including in developing countries ) increasing faster than the world economy, suggesting that the sector is becoming one of the major players in the development process. REGIONAL FACTS v Some two-thirds or US $6.6 trillion out of the US $10 trillion American economy is consumer spending. About 40% or that ($3 trillion) is spent on discretionary products and services. v Retail turnover in the EU was almost 2,000 billion in 2001 and the sector’s better than average growth looks set to continue in the future. v Retail trade in Europe employs 15% of the European workforce (3 million firms and 13 million workers). v The Asian economies (excluding Japan) are expected to have 6% growth rates in 2005-06. -13-
  14. 14. CONSUMER EXPECTATIONS v Time and quality of life are becoming relatively more important than money; 60% of Americans want to lead a simple life. v Product performance was found to be the top purchasing criterion, while environmental features were a close second in a survey conducted by the Alliance for Environmental Innovation in conjunction with SC Johnson Wax.CHARACTERISTICS OF RETAILINGRetailing can be distinguished in various ways from other businesses such as manufacturing.Retailing differs from manufacturing in the following ways: v There is direct end-user interaction in retailing. v In is the only point in the value chain to provide a platform for promotions. v Sales at the retail level are generally in smaller unit sizes. v Location is a critical factor in retail business. v In most retail businesses services are as important as core products. v There are a larger number of retail units compared to other members of the value chain. This occurs primarily to meet the requirements of geographical coverage and population density. Direct Interaction with Customers Retail businesses have a direct interaction with end-users of goods or services in the value chain. They act as intermediaries between end-users and suppliers such as wholesalers or manufacturers. Therefore, they are in a position to effectively communicate the response and changing preferences of the consumers to the suppliers or sales persons of the company. This helps the manufacturers and markets to redefine their product and change the components of its marketing strategy accordingly. Manufacturers require a strong retail network both for reach of the product and to obtain a powerful platform for promotions and point-of-purchase advertising. Realizing the importance of retailing in the entire value chain, many manufacturers have entered into retail business by setting up exclusive stores for their brands. This has not only provided direct contact with customers, but has also acted as advertisement for the companies and has provided -14-
  15. 15. the manufacturers with bargaining power with respect to other retailers who stocked theirproduct. Retailing provides extensive sales people support for products which areinformation intensive, such as in the case or consumer durables.Lower Average Amount of Sales Transaction The average amount of sales transaction at retail point is much less in comparison tothe other partners in the value chain. Many consumers buy products in small quantitiesfor household consumption. Due to lower disposable incomes, some consumer segmentsin India even buy grocery items on a daily basis rather than a weekly or a monthly basis.Inventory management becomes a challenge for retailers as a result of the many minortransactions with a large number of customers. Hence, retailers must take care ofdetermining average levels of stock, order levels and the retailer has to keep a tightcontrol on costs associated with each transaction in the selling process. Creditverification, employment of personnel, value-added activities like bagging, gift-wrappingand promotional incentives all add up to the costs. One way to resolve this is for the retailoutlets to be able to attract the maximum possible number of shoppers.Point-of-purchase Display and Promotions A significant relevant chunk of retail sales comes from unplanned or impulsepurchases. Studies have shown that shoppers often do not carry a fixed shopping list andpick up merchandise based on impulsive or situational appeal. Many do not look at adsbefore shopping. Since a lot of retail products are low involvement in nature, impulsepurchases of the shopper is a vital area that every retailer must tap into. Therefore,display, point-of-purchase merchandise, store layou8t and catalogues become important.Impulse goods like chocolates, snack foods and magazines can sell much more quickly ifthey are placed in a high visibility and high traffic location.Larger Number of Retail Business Units Location of retail store plays an important role compared to other business units.Manufacturers decide the location on the basis of availability of factors of productions -15-
  16. 16. and market. Similarly, retailers consider factors like potential demand, supply ofmerchandise and store image-related factors in locating the retail outlet. The number ofoperation units in retail is the highest compared to other constituents ot the value chain,primarily to meet the needs for geographic reach and customer accessibility.THEORIES AND MODELS OF RETAILING 1. DIALECTIC PROCESS: - An evolutionary theory based on the premise that retail institutions evolve. The theory suggests that new retail formats emerge by adopting characteristics from other forms of retailers in much the same way that a child is the product of the pooled genes of two different individuals. 2. GRAVITY MODEL: - A theory about the structure of market areas. The model states that the volume of purchases by consumers and the frequency of trips to the outlets are a function of the size of the store and the distance between the store and the origin of the shopping trip. 3. RETAIL ACCORDION THEORY:- A theory of retail institutional changes that suggests that retail institutions go from outlets with wide assortments to specialized, narrow, line store merchants and then back again to the more general, wide-assortment institution. It is also referred to as the general- specific-general theory. 4. RETAIL LIFECYCLE THEORY:-A theory of retail competition that states that retailing institutions, like the products they distribute, pass through and identifiable cycle. This cycle can be partitioned into four distinct stages: i. Innovation, ii. Accelerated development, iii. Maturity, and iv. Decline. 5. WHEEL OF RETAILING THEORY: - A theory of retail institutional changes that explains retail evolution with an institutional life cycle concept. 6. NATURAL SELECTION THEORY: - A theory of retail institutional changes that states that retailing institutions that can most effectively adapt to environmental changes are the ones that are most likely to prosper or survive. -16-
  17. 17. 7. CENTRAL PLACE THEORY: - A model that ranks communities according to the assortment of goods available in each. At the bottom of the hierarch are communities that represent the smallest central places (centres of commerce). They provide the basic necessities of life. Further up the hierarchy are the larger central places, which carry all goods and services, found in lower-order central places plus more specialized ones that are not necessary.FUNCTIONS OF RETAILING Retailers play a significant role as a conduit between manufacturers,wholesalers, suppliers and consumers. In this context, they perform variousfunctions like sorting, breaking bulk, holding stock, as a channel ofcommunication, storage, advertising and certain additional services.SORTIONG Manufacturers usually make one or a variety of products and would like tosell their entire inventory to a few buyers to redu7ce costs. Final consumers, incontrast, prefer a large variety of goods and services to choose from and usuallybuy them in small quantities. Retailers are able to balance the demands of bothsides, by collection an assortment of goods from different sources, buying them insufficiently large quantities and selling them to consumers in small units. The above process is referred to as the sorting process. Through this process,retailers undertake activities and perform functions that add to the value of theproducts and services sold to the consumer. Supermarkets in the US offer, on andaverage, 15,000 different items from 500 companies. Customers are able tochoose from a wide range of designs, sizes and brands from just one location. Ifeach manufacturer had a separate store for its own products, customers wouldhave to visit several stores to complete their shopping. While all retailers offer anassortment, they specialize in types of assortment offered and the market to whichthe offering is made. Westside provides clothing and accessories, while a chainlike Nilgiris specializes in food and bakery items. Shoppers’ Stop targets the eliteurban class, while Pantaloons is targeted at the middle class. -17-
  18. 18. BREAKING BULK Breaking bulk is another function performed by retailing. The word retailingis derived from the French word retailler, meaning ‘to cut a piece off’. To reducetransportation costs, manufacturers and wholesalers typically ship large cartons ofthe product, which are then tailored by the retailers into smaller quantities to meetindividual consumption needs.HOLDING STOCK Retailers also offer the service of holding stock for the manufacturers.Retailers maintain an inventory that allows for instant availability of the productto the consumers. It helps to keep prices stable and enables the manufacturer toregulate production. Consumers can keep a small stock of products at home asthey know that this can be replenished by the retailer and can save on inventorycarrying costs.ADDITIONAL SERVICES Retailers ease the change in ownership of merchandise by providing servicesthat make it convenient to buy and use products. Providing product guarantees,after-sales service and dealing with consumer complaints are some of the servicesthat add value to the actual product at the retailers’ end. Retailers also offer creditand hire-purchase facilities to the customers to enable them to buy a product nowand pay foe it later. Retailers fill orders, promptly process, deliver and installproducts. Salespeople are also employed by retailers to answer queries andprovide additional information about the displayed products. The display itselfallows the consumer to see and test products before actual purchase. Retailessentially completes transactions with customers.CHANNEL OF COMMUNICATION Retailers also act as the channel of communication and information betweenthe wholesalers or suppliers and the consumers. From advertisements, salespeople -18-
  19. 19. and display, shoppers learn about the characteristics and features of a product or services offered. Manufacturers, in their turn, learn of sales forecasts, delivery delays, and customer complaints. The manufacturer can then modify defective or unsatisfactory merchandise and services. TRANSPORT AND ADVERTISING FUNCTIONS Small manufacturers can use retailers to provide assistance with transport, storage, advertising and pre-payment of merchandise. This also works the other way round in case the number of retailers is small. The number of functions performed by a particular retailer has a direct relation to the percentage and volume of sales needed to cover both their costs and profits. As a result of these functions, retailers are required to perform the following activities: ACTIVITIES PERFORMED BY RETAILERS Retailers undertake various business activities and perform functions that add value to the offerings they make to their target segments. Retailers provide convenient location, stock and appropriate mix of merchandise in suitable packages in accordance with the needs of customers. The four major activities carried out by retailers are: 1. Arrange for assortment of offerings 2. Breaking quantity 3. Holding stock 4. Extending servicesARRANGING ASSORTMENTAn assortment is a retailer’s selection of merchandise. It includes both the depth and breadthof products carried. Retailers have to select the combination of assortments from variouscategories. The assortments must include substitutable items of multiple brands and pricepoints. They should be distinguished on account of physical dimensions and attributes e.g.,colour or flavour. The small retailer takes assortment decision on the basis of his experience; -19-
  20. 20. on the other hand retailers from organized retailing depend on a detailed study of past trendsand future projections.Retailers need to consider certain factors while devising assortment plans for their stores:profitability associated with particular merchandise mix, store image, layout and the level ofcompatibility between the existing merchandise. For example, FoodWorld, a leading foodsupermarket positioned as a one-stop shopping centre, deals in multiple product categoriesalong with all possible variants of brands, stock keeping units, and physical attributes inorder to meet the expectations of their consumers and survive in the business. Whereas,Subhiksha, a grocery chain in south India has impressive assortments of only the fast movingbrands rather than all available variants in the market. Their assortment plan is governed bylocation, size and store image of their stores.BREAKING BULKBreaking bulk means physical repackaging of the products by retailers in small unit sizesaccording to customer’s convenience and stocking requirements. Normally, retailers receivelarge quantities of sacks and cases of merchandise from suppliers to reduce theirtransportation costs. In order to meet their customers’ requirements retailers have to break orarrange the bulk into convenient units. This entire function of the retailers adds value to theofferings not only for the end customers but also for the suppliers in the value chain. Even inthe earlier days of generic and commodity-based trading most of the retailers used to performthis important function in the value chain. This function receives negligible attention fromthe retailers now due the introduction of new product categories, such as FMCG and ready-to-wear apparel.HOLDING STOCKTo ensure the regular availability of the offerings retailers maintain appropriate levels ofinventory. Consumers normally depend on the retailers directly to replenish their stocks athome. Therefore, retailers, on periodic basis, maintain the required levels of stock to meet theregular or seasonal fluctuations in the demand. Retailers need to maintain equilibriumbetween the range or variety carried and the sales which it gives rise to. Retailers have to facethe negative consequences of holding unwanted levels of stock—for instance, too little stock -20-
  21. 21. will hamper the sales volume, whereas, too much stock will increase the retailer’s cost ofoperation. Generally, in small towns of India most retailers have arrangements with thenearby warehouses to stock the goods. Some are so small that they have to stock only on theshop floor. Retailers in the organized sector, to a certain extent, are using effective softwarepackages for maintaining adequate levels of inventory. At the same time, retailers avail ofjust-in-time deliveries with the help of efficient consumer response systems, which reducesthe burden of maintaining high levels of stocks.EXTENDING SERVICESRetailing provides multiple services to immediate customers and other members of the valuechain. The set of services extended by particular retailers may be part of their core productofferings or it may be ‘add on’ to their product or service. Retailers offer credit, homedelivery, after-sales services and information regarding new products to their customers,thereby making the shopping experience convenient and enjoyable. At the same time, theyprovide stocking place, reach to the ultimate customers, and information about theconcerned target segment to the suppliers. For example, Time Zone, the first organized retailchain of wristwatches in India, started by leading watch manufacturers Titan, set up in all itsstores, service centres with proper equipment and trained manpower. This has not onlydiluted the relevance of service providers in the unorganized sector but has also enhanced theconfidence of the customers in the retai9l services provided by the particular retail chain, asafter-sales service is considered to be an integral ingredient of the watch purchase.CATEGORIZING RETAILERSCategorizing retailers helps in understanding the competition and the frequent chandes thatoccur in retailing. There is no universally accepted method of classifying a retail outlet,although many categorization schemes have been proposed. Some of these includeclassifying on the basis of v Number of outlets v Margin Vs Turnover v Location v Size. -21-
  22. 22. The number of outlets operated by a retailer can have a significant impact on thecompetitiveness of a retail firm. Generally, a greater number of outlets add strength to thefirm because it is able to spread fixed costs, such as advertising and managers’ salaries, overa greater number of stores in addition to acquiring economies of purchase. While any retaileroperating more than one store can be technically classified as a chain owner, for practicalpurposes a chain store refers to a retail firm which has more than 11 units. In the UnitedStates, for example, chain stores account for nearly 95% of general merchandise stores. Small chains can use economies of scale while tailoring merchandise to local needs. Bigchains operating on a national scale can save costs by a centralized system of buying andaccounting. A chain store could have either a standard stock list ensuring that the samemerchandise is stocked in every retail outlet or an optional stock list giving the outlets theadvantage of changing the merchandise according to customer needs in the area. Because oftheir size, chain stores are often channel captains of the marketing channel—captains caninfluence other channel partners, such as wholesalers, to carry out activities they might nototherwise engage in, such as extended payment terms and special package sizes. Big stores focus on large markets where their customers live and work. They usetechnology to learn more about their customers and target them with point-of-sale machinesinteractive kiosks, and sophisticated forecasting and inventory systems.They tend to stock anarrow range of inventory that sells well and maintain an extensive inventory of the fastselling products. Branding is important to them. Pricing is often a key area of focus for theseretailers. Big stores have many strengths, including regional or national reputation, hugebuying power, vast inventory and hassle-free return and exchange policies. Their primelocations, the consistency in their products and services, the fact that they are open whenpeople can and want to shop and the clear consistent image and identity they develop andmaintain challenge the abilities and resources of many small retailers. Perhaps their biggestadvantage is their knowledge in every aspect of their business, from inventory selection tostore layout. However, large retailers are not perfect. They have competitive weaknesses that smallretailers can exploit. Most offer the same standardized assortments of products nationally.Local managers have little say in inventory selection. Often, sales staff has minimal productknowledge. Staff turnover is extremely high. Most large retailers have little connection with -22-
  23. 23. the community they serve. They usually do not offer special services. Larger companies areoften slow to recognize and react to changes in their local markets. Independent retailers can co-exist and flourish in the shadow of the big chains bydeveloping a niche within the diverse market. The niche should be developed on the basis ofnew or unusual product offerings, superior service and overall quality. While value isimportant, price may be less important. Efficient operations, including precise buyingpractices, are a must. Customer contact within the niche market must be characterized by‘high-touch’ service. The key factor is innovation: stores that do not change will perish. Theroad to success for the independent retailer lies in doing all the things those big chain storescan not or will not do. The successful independent retailers embrace the following principles: v Be prepared for change. v Move to a narrower niche market and stop competing directly with the big retailers. v Learn more about customers and include best customers in a database. v Invest appropriately in advertising and promotion. v Charge regular prices and avoid discounting (ensure requisite mark-up). v Buy with precision and search out speciality suppliers. v Maintain essential inventory. v Focus on profit instead of volume (be ready to lose an occasional sale). v Provide extraordinary service. v Employ the best possible staff. v Understand the significance of the Internet. Gross margin and inventory turnover is another means of classifying retailers. Gross margin is net sales minus the cost of goods sold and gross margin percentage is the return on sales. A 30% margin implies that a retailer generates Rs 30 for every Rs 100 sales that can be used to pay operating expenses. Inventory turnover refers to the number of times per year, on average, a retailer sells his inventory. On the basis of this, retailers are classified as low margin low turnover—those that cannot survive the competition—and low margin high turnover, exemplified by Jewellery stores and appliance stores are examples of high margin low turnover stores and only a few retailers achieve high margin high turnover. These -23-
  24. 24. retailers are in the best position to combat competition because their high turnover allowsthem to withstand price wars. The drawback of the classification by this method is thatservice retailers who have no inventory turnover cannot be encompassed. One of the old means of classification of retailers is by location, generally within ametropolitan area. Retailers are no longer satisfied with traditional locations within acity’s business district but are on the constant lookout for alternate locations to reachcustomers. Besides renovating old stores, retailers are testing unorthodox locations toexpand their clientele. With the advent of the Internet, this area of retailing is likely toundergo tremendous changes in the coming years. Size is often used as a yardstick to classify retailers because costs often differ on thebasis of size, with big retailers having lower operational costs per dollar than smallerplayers. However, in this sphere too, the Internet may make size an obsolete method ofcomparison.TRENDS IN RETAIL FORMATS Retail industry is continuously going through changes on account of liberalization,globalization and consumer preferences. While multinational retail chains are looking fornew markets, manufacturers are identifying, redefining, or evolving new retail formats.The existing retail houses are also gearing up to face the emerging competition from theorganized sector and the changing outlook of the consumers. For example, consumerspending is shifting from goods to services. Accordingly the retailers too are fastadjusting to the changing consumer preferences. Consumers are not only looking for the core products or functional benefits from theretailers but also the non-functional benefits, which need to be compatible with theirlifestyles. For example, most of the traditional eating joints in India such as Haldiram,Bikaner and Sagar Ratna have revised their product offerings and atmospherics on thelines of the multinational chains to compete with them and to serve changed expectationsof the consumers.Mom-and-pop Stores and Traditional Kirana Stores The retail sector is changing as new store categories have started dominating themarketplace. Mass merchandisers (Wal-Mart, Big Bazaar), discount clubs (Subhiksha), -24-
  25. 25. so-called category killers (Home Depot, Vishal chain), and speciality retailers (TimeZone, Tanishq) have all developed a successful retail models. At the same time, the smallmom-and-pop stores and the traditional department stores, are finding the competitionintense. In 2002, while Wal-Mart and Target saw revenues grow (by 12% and 10%,respectively), department stores such as Saks and Federated experienced decliningrevenues (down 3% and 1% respectively). But even in the mass-merchandising segment,the competition is fierce, as is evidenced by Kmart’s bankruptcy announcement in 2002.Small independent stores, across product categories, is a very common retail formats theyare also undertaking large scale renovations to appeal and attract their target consumersegments.E-commerce The amount of retail business being conducted on the Internet is growing every year.Indeed, Forrester Research Agency projects e-commerce revenue to rise to $123 billionin 2004, an increase of some 28% over the previous year and for e-tailing to comprise abigger slice of the overall retail pie (5.6%, up from 4.5% in 2003). Many major retailorganizations and manufacturers have online retail stores. Companies like Amazon.comand First and, which helped pioneer the retail e-commerce concept, are nowbeing followed by bricks-and-mortar and catalogue retailers like J. Crew, which areexpanding retail e-commerce into new markets.Department Stores A few years ago, names like Sears, J.C. Penney, Macy’s, and Montgomery Warddominated malls and downtowns all over America. Over the last decade or so, however,these department stores have suffered badly. In part, this is a result of changing shoppingpatterns and increased competition from discount stores. It has also come from financialburdens incurred by companies that acquired competing companies and grew too fast. Itis unlikely that these players will disappear from the market. However, they should beready to expect more bumps as the strong get stronger and the weak get absorbed. -25-
  26. 26. Discount Stores These are giants such as Wal-Mart (the largest retailer in the world, with more than amillion; employees), Target and Kmart, as well as membership warehouses, such asCostco. These, along with the category killers, have changed the landscape of both theretail industry and America. Where once mom-and-pop and department stores dominatedretail, now the discount retailers and category killers are at the top of the heap. Andwhere once shopping malls, anchored by at least one major department store, ;used to bethe dominant retail presence lining the nation’s roads, now it is the behemoth Wal-Martsand Home Depots.Category Killers These are the giant retailers that dominate one area of merchandise (e.g., OfficeDepot, Tower Records and The Sports Authority). They are able to buy bathroom tiles,file cabinets, electronic goods or pet food in such huge volumes that they can then sellthem at prices even fairly large competitors cannot match. The future of this category isbetter than that of many of the more general discounters, but the same employmentcaveats apply. For most job seekers, these companies offer earn-and-learn experienceswith vendors and distributors before they move onward and upward.Speciality Stores These include Crate & Barrel, the Body Shop, and Victoria’s Secret. These storesconcentrate on one type of merchandise and offer it in a manner that makes it special.Some are very high-end (Louis Vuitton) while others cater to the price-conscious masses(Old Navy). Many are so successful that department stores have started to emulate theirbuying, marketing, and merchandise display strategies. Industry experts predict growth inthis segment, particularly in home furnishings and home improvement, and it seems toattract many of the best and brightest in retail. Promotion and responsibility come quicklyto those willing to work hard, and in many of these stores the hand of bureaucracy is notheavy. -26-
  27. 27. E-tailers While most retailers have online storefronts, strictly online purveyors with no bricks-and-mortar counterparts are hoping to snare a percentage of the retail profit. Majorplayers, such as, have generated enough business to cause top brick-and-mortar competitors to come up with their own Internet sites. Traditional retailers likeWal-Mart and Starbucks, hugely successful in their own right, have also set up onlinestores so as not to miss out on the revenue opportunities that the Interned offers. -27-
  28. 28. BARISTABarista positioned its outlets as a place where people meet each other in an environment,which fulfills both their social and intellectual needs. The music is not too loud andencourages conversation, and the person behind the counter is non-intrusive and friendly.Any consumer knows that even when it is crowded at Barista, you will have your share ofprivacy. This is because the other consumer is not listening in; he is too involved in himself. MARGIN FREE MARKETSMargin Free Markets is the largest retail chain in the state of Kerala and one of the leadingretail chains in India. The first outlet of this chain started functioning on 26 January 1994 atThiruvananthapuram. There are currently more than 275 franchisees of Margin Free Marketsspread all over south India. The outlets are franchises and are not actually owned by thechain. The Consumer Protection and Guidance Society currently control Margin FreeMarkets, which is registered charitable institution that started functioning in 1993. Theconsumers are assured of quality, quantity and fair price of the goods sold through theMargin Free Markets. Any retailer can upgrade his shop to a Margin Free outlet by sendingin an application to the society. If his application is accepted, he has to make the necessaryinvestment as required. These shops deal in the enter gamut of foods required by a home forits monthly consumption, grocery, food and non-food FMCG items, fruits and vegetables,consumer goods and household articles. Margin Free outlets are typical discount stores,offering one-stop-shop convenience and self service facility at significant discount to itscustomers. Most of these customers, in time, turn out to be its permanents customers bytaking discounts cards, which permit them to obtain larger discounts than the non-cardholders. The necessity to offer protection against the rising prices gave birth to the idea ofMargin Free Markets. An enthusiastic entrepreneur, named Mr N. Ravikumar, conceived theidea. The idea turned out to be an instant success in Kerala especially because Kerala is moreof, a ‘consumer’ state than a ‘producing’ state Kerala depends on her neighbouring states forher consumer needs. Due to the large number of intermediaries involved and thetransportation costs, the prices are high and there is a wide fluctuation in the prices ofgroceries, fruits and vegetables. -28-
  29. 29. RETAIL ORGANIZATION The term retail organization refers to the basic format or structure of a retail businessdesigned to cater to the needs of the end customer. Recently, some scholars have startedreferring to India as a nation of shopkeepers. This epithet has its roots in the huge numberof retail enterprises in India, which were over 12 million in 2003. About 78% of these aresmall family businesses utilizing only household labour.Retail firms may ;be independently owned, parts of a retail chain, operated as afranchisee, leased departments, owned by manufacturers or wholesalers, consumers-owned or co-operative society.A retail unit could be owned by: v Manufacturer (e.g., company owned retail outlets) v Wholesaler (e.g., Vastra outlet in Rajouri in New Delhi) v Independent retailer (Chanakya Sweet Shop near Hazratganj in Lucknow) v Consumer (consumer owned grocery stores in man y residential societies) v Co-operative society (e.g., Mother Dairy milk booths in Delhi) v Government (e.g., Cottage Emporia) v Ownership shared among franchiser and franchisee (e.g., Archies Gallery) Although most Indian retailers fall in the category of small-scale units, there are also some very big retailers. Organized retail stores are generally characterized by large, professionally managed store formats providing goods and services that appeal to customers, in an ambience that is conducive for shopping and provides a memorable experience to customers. From positioning and operating perspectives, each ownership format serves a marketplace niche and presents certain advantages and disadvantages. Retail executives must not lose sight of this in playing up their strengths and working around their weaknesses.THE CHANGING STRUCTURE OF RETAILING All dynamic developments in retailing, from the birth of departmental stores in thelast century to the recent emergence of warehouse clubs and hypermarkets, have been -29-
  30. 30. responses to a changing environment. Changing customer demand, new technologies,intense competition, and social changes create new opportunities even as they shake upexisting business. The retail business formats have been changing very fast mainly due to technologicalinfluences. The Internet and the Web technologies have created a myriad f opportunitiesfor the Web-based business model of retailing. This has created a competition for theretailer with its own self. Besides, the challenge for the retailer now is to keep abreast ofthese latest formats in order to maintain and grow its share of market and compete withinits band of retailers. A key impact of technology has been provision ;of greater information to thecustomer. Hence, a big challenge for the retailer in the information savvy world of todayis that the opportunities for price differentiate itself qualitatively by superior customerservices or better value for money to the customer.CLASSIFICATION OF RETAIL UNITS Conceptual classification of a business unit provides the marketers with strategicguidelines, useful in the design of retailing strategy. Besides, retail businesses areextremely diverse and there are quite a few types of retail units. Therefore, retail units areclassified on multiple of ownership, geographical locations, kind of customer interactionlevel of services provided etc.Retailers Classified on the Basis of Ownership One of the first decisions that the retailer has to make as a business owner is how thecompany should be structured. This decision is likely to have long-term implications, soit is important to consult with an accountant and attorney to help one select preferredownership structure. There are four basic legal forms of ownership for retailers: 1. Sole proprietorship: - The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has the day-to-day responsibility for running the business. -30-
  31. 31. 2. Partnership: - A partnership is a common format in India for carrying out business activities (particularly trading) on a small or medium scale. In a partnership, two or more people share ownership of a single business.3. Joint venture: - A joint venture is not well defined in the law. Unless incorporated or established as a firm as evidenced by a deed, joint ventures may be taxed like association of persons, sometimes at maximum marginal rates. It acts like a general partnership, but is clearly for a limited period of time or a single project.4. Limited liability Company (public and private):- The Limited Liability Company (LLC) is a relatively new type of hybrid business structure that is now permissible in most states. The owners are members, and the duration of the LLC is usually determined when the organization papers are filed.Classification of Retailers on the basis of Operational Structure Retail businesses are classified on the basis of their operational andorganizational structure. Operational structure defines the key strategic decisionof retail entity, whether to hire employees and manage the distributed salesfunction internally or to reach customers though franchised outlets owned andoperated by local entrepreneurs. Retail firms can be classified into five heads on the basis of their respectiveoperational structures: 1. Independent retail unit: - The total number of retailers in India is estimated to be over 5 million in 2003. About 78% of these are small family businesses utilizing only household labour. An independent retailer owns one retail unit. 2. Retail Chain: - A chain retailer operates multiple outlets (store units) under common ownership; it usually engages in some level of centralized (or coordinated) purchasing and decision making. 3. Franchising: - Franchising involves a contractual arrangement between a franchiser (which may be a manufacturer, a wholesaler, or a service sponsor) and a retail franchisee, which allows the franchisee to conduct a -31-
  32. 32. given form of business under and establishments name and according to a given pattern of business.4. Leased Department or Shop-in-shop:-It refers to department in a retail store that are rented to an outside party. Usually this is done in case of department and speciality stores and also at times, in discount stores.5. Co-operative Outlets: - Co-operative outlets are generally owned and managed by co-operative societies. In this context the detailed example of Kendriya Bhandar in India.Classification of Retailers on the basis or Retail Location Retailers have also been also been classified according to their storelocation. Retailers can locate their stores in an isolated place and attract thecustomers to the store on their own strength—such as a small grocery store orpaan shop in a colony, which attracts the customers staying close by.Classification of retailers on the basis of location is discussed below: 1. Retailers in a free-standing location:- Retailers located at a site which is not connected to other retailers depend entirely on their sore’s drawing power and on the various promotional tools to attract customers. This type of location has several advantages including no competition, low rent, better visibility from the road, easy parking and lower property costs. For example the Haldiram’s outlet on the Delhi- Jaipur highway and the McDonald’s outlet on Delhi-Ludhiana highway. 2. Retailers in a Business-associated Location:-In this case, a retailer locates his store in a place where a group o retail outlets, offering a variety of merchandise, work together to attract customers to their retail area, and also compete against each other for the same customers. 3. Retailers in Specialized Markets: - Besides the above location-based classification, we also have in India-retailers who prefer specialized markets, particularly traditional independent retailers or chain stores. -32-
  33. 33. In India, most of the cities have specialized markets famous for a particular product category. For example, in Chennai, Godown Street is famous for clothes, Bunder treet for stationery products, Usman street for jewellery, T Nagar for ready-made garments, Govindappan naicleen street for grocery, Poo Kadia for food and vegetables.4. Airport Retailing: - For quite some time, duty-free shops and news- stands dominated the small amount of commercial space provided at airports. Lately, serious efforts are being made to design new airport facilities in order to incorporate substantial amounts of retail space. The key features of airport retailing are: v Large groups of prospective shoppers v Captive audience v Strong sales per square foot of retail space v Strong sales of gift and travel items v Difficulty in replenishment v Longer operating hours v Duty-free shopping possible.` -33-
  34. 34. VARIETY OF MERCHANDISE MIX The retail merchandising has come a long way in India since the days when generalstores (kirana) that stocked everything from groceries to stationery and small shops that soldlimited varieties of products (such as clothes, furniture, medicines) reigned supreme. There are many different retail stores in India—convenience stores, supermarkets,hypermarkets, department stores, brand stores and discount stores characterized by thevariety of merchandise mix offered by a respective retail format. The consumer can choosebetween different stores for different needs. Retail units, on account of variety ofmerchandise mix, can be classified as follows: .Department Stores: - It is a large retail store organized into a number ofdepartments, offering a broad variety and depth of merchandise, commonly part of a retailchain. Usually, department stores are located within the planned shopping centres ortraditional up market downtown centres. The leading fashion department stores in India areEbony, Globus, LifeStyle, Pantaloon, Shoppers’ Stop and Westside. All of them are multi-product stores, Ebony has 7 stores, Globus has 4 stores, LifeStyle has 3 stores and there are12 Pantaloon Family Stores. Discount Stores: - Retailers offering a broad variety of merchandise mix, limited orno service and low prices are characterized by low margins, heavy advertising, lowinvestments on fixtures, limited support from sales people etc. Discount stores prefershopping centres that provide space at lower rents as they attract customers from otheradjoining stores in the shopping centre. Speciality Stores: - Speciality stores stress on one or a limited number ofcomplementary product categories and extend a high level of service to their customers. InIndia, the traditionally independent retailers in the specialized market centres operate in aparticular product category, at these centres attract large crowds. Such specialized retailoperations provide expertise economies of scale, bargain and image to the particular stores. Supermarkets and Hypermarkets:- A hypermarket is a very large retail unitoffering merchandise at low prices. Superstores have a sales area of over 50,000sq.ft.Hypermarkets are characterized by large store size, low operating costs and margins, lowprices and comprehensive range of merchandise. -34-
  35. 35. RETAIL IN INDIA The retail industry in India is largely unorganized and predominantly consists ofsmall, independent, owner-managed shops. Retailing is India’s largest industry in terms ofcontribution to GDP and constitutes 13% of the GDP (Gross Domestic Product). There arearound 5 million retail outlets in India. There are also an unaccounted number of low costKiosks (tea stalls, snack centres, barber shops) and pushcarts mobile vendors. Total retailsales area in India was estimated at 328 million sq. mt. in 2001, with an average selling spaceof 29.4 sq. mt. per outlet. In India, the per capita retailing space is about 2 sq. ft., which isquite low in comparison to the developed economies. In 2000, the global management consultancy AT Kearney put retail trade at Rs400,000 crore, which is expected to increase to Rs 800,000 crore by the year 2005—anannual increase of 20%. According to a survey by AT Kearney, an overwhelming proportionof the Rs 400,000 crore retail markets is unorganized. In fact, only a Rs 20,000 crore segmentof the market is organized. There is no integrated supply chain management outlook in theIndian traditional retail industry. Food sales constitute a high proportion of the total retail sales. The share was 62.7%in 2001, worth approximately Rs 7,039.2 billion, while non-food sales were worthRs4189.5billion. However, the non-food retailing sector registered faster year-on-yeargrowth than the food sales sector. The trend to market private labels by a specific retail storeis catching on in India as it helps to improve margins. The turnover from private labels bymajor retail chains was estimated at around Rs 1200 million in 2000.Growth in retail outlets (millions)Year Urban Rural Total1978 0.58 1.76 2.351984 0.75 2.02 2.771990 0.94 2.42 3.361996 1.80 3.33 5.13Source: indiainfoline -35-
  36. 36. Composition of urban outletsRetail Outlet CompositionGrocers 34.7%Cosmetic stores 4.0%Chemist 6.3%Food stores 6.6%General stores 14.4%Tobacco, pan stores 17.0%others 17.0%Source: indiainfolineComposition of rural outletsRetail Outlet CompositionGrocers 55.6%General stores 13.5%Chemists 3.3%Others 27.6%Source: IndiainfolineEMERGENCE OF ORGANIZED RETAILING Organized retailing in India represents a small fraction of the total retail market. In2001, organized retail trade in India was worth Rs 11,228.7 billion. The modern retailformats are showing robust growth as several retail chains have established a base inmetropolitan cities, especially in south India and are spreading all over India at a rapid pace.However, space and rentals are proving to be the biggest constraints to the development oflarge formats in metropolitan cities since retailers are aiming at prime locations. -36-
  37. 37. In urban India, families are experiencing growth in income but dearth of time. Moreand more women are taking up corporate jobs, which is adding to the family’s income andleading to better lifestyles rising incomes has led to an increased demand for better qualityproducts while lack of time has led to a demand for better quality products while lack of timehas led to a demand for convenience and services. The demand for frozen, instant, ready-to-eat food has been on the rise, especially inthe metropolitan and large cities in India. There is also a strong trend in favour of one-stopshops like supermarkets and department stores. Rural India continues to be serviced by small retail outlets. Only 3.6 million outletscater to more than 700 million inhabitants of rural India. Here, provision stores, paan shopsand ration shops are the most popular vehicles of retailing. Apart from this, there are periodicor temporary markets, such as haats, peeth and melas that come up at the same location atregular time intervals. The McKinsey report predicts that FDI will help the retail businesses to grow to US $460-470 billion by 2010. There has been a strong resistance to foreign direct investment(FDI) in retailing from small traders who fears that foreign companies would take away theirbusiness, lead to the closure of many small trading businesses and result in large-scaleunemployment. Therefore, government has discouraged FDI in the retail sector. At present,foreign retailers can enter the retailing sector only through restricted modes. Global playersin the retail segment have been entering the market for a while now. Players that enteredbefore the easing of restrictions on FDI in retail had to come through different modes, suchas joint ventures where Indian partner is an export house (Total Health Care);franchising/local manufacturing/sourcing from small-scale sector (McDonald’s, Pizza Hut);cash and carry operations (Giant) and licensing (Marks & Spencer’s). The main condition for organized retailing is that the retailer should be able tomanage and influence the supply chain variables in a commercially viable and sustainablemanner. The organized retailer should be able to, through diversified risks and volume salescommand huge concessions on prices from the manufacturers. He should then be in aposition to allow a trickle down of this advantage to consumers out of his saved costs. -37-
  38. 38. RETAILING IN RURAL INDIA An important phenomenon in India’s consumer culture is the emergence of the ruralmarket for several basis consumer goods. Three fourths of India’s population lives in ruralareas and brings one-third of the national income. This rural population is spread all overIndia in about 0.6 million villages. This simply shows the great purchasing potential of ruralIndia. It has also brought the much-needed volume driven growth for companies, particularlyin the FMCG sector. Also, the rural market has been growing steadily over the years and is now biggerthan the urban market for FMCGs (53% share of the total market), with an annual size, invalue terms, currently estimated at around Rs 50,000 crores. It is a definite boon for thecompanies who have already reached the plateau in their business curve in urban India andare seeking new ways to increase sales. As per the National Council for Applied Economic Research (NCAER) study, thereare as many ‘middle income and above’ households in the rural areas as there are in theurban areas. There are almost twice as many ‘lower middle income’ households in rural areasas in the urban areas. At the highest income level there are 2.3 million urban households asagainst 1.6 million households in rural areas. According to the NCAER projections, the number of middle and high-incomehouseholds in rural India is expected to grow from 80 million to 111 million by 2007. Nearly4.5% of rural Indians are literate (men 59%, women 31%), and 33% of all villages (0.21million) are connected by puccca roads. In all, there are more than 3.8 million retail outlets inrural India, averaging 5.8 shops per village (the term ‘shop’ refers to any type of premises—huts, stalls, shacks that sell goods). But despite the high rural share in these categories, therural penetration rates are low, thus offering tremendous growth potential to the companies. -38-
  39. 39. RURAL MARKET PENETRATION LEVELS SELECTED GOODSDurable Rural share % Product Penetration %Refrigerator 24.30 Coffee 7Black and white television 62.65 Biscuits 60.1Washing machine 14.64 Toilet soap 91.6Pressure cooker 51.51 Toothpaste 35.6Instant water heater 2.04 Talcum powder 16.4Mixer/grinder 27.43 Hair oil 16.0Colour television 28.77 Shampoo 39.8Scooter 28.56 Razor blade 47.1Motorcycle 47.87 Skin cream 15.5Source: NCAER, 2001RURAL FMCG MARKET: A SNAPSHOTCategory Total size # % Growth* Rural size (Rs. Crore)Toilet soap 7500 13.4 6021Body talcum power 940 23.65 793Toothpaste 2080 23.5 1441Tea 6500 10.97 4955Health beverages 908 28.54 601Electric bulbs 750 9.4 354Cigarettes 7662 13.09 6442Packaged biscuits 2500 6.79 1323# Figures in Rs crore for 1998-99* Annual growth rates compounded for last five years (1998-2003)Source: Business Intelligence Unit and NCAER, 1998-99 -39-
  40. 40. PERCENTAGE OF RURAL HOUSEHOLDSIncome group 1994-95 2000-2001 2001-2006*>Rs 1,06,000 1.6 3.8 5.6Rs 77,000-1,06,000 2.7 4.7 5.8Rs 50,001-77,000 8.3 13.0 22.4Rs 25,001-50,000 26.0 41.1 44.6<Rs 25,000 61.4 37.4 20.2* 2000-2001 and 2001-2007 projections are based on 7.2% GDP growthSource: NCAER Most manufacturers and marketing companies have a distribution arrangement forvillages through village shopkeepers. While it is necessary for marketers to select a particular distribution channel in ruralareas in accordance with the characteristics of the product—consumable or durable—theshelf-life of the product and other factors have to be kept in mind. The challenges for themarketers and retailers are immense in rural India on account of poor logistics, limitedstorage and transport facilities, inaccessible markets and high level of demand concentration.In such circumstances, the significance of retail network increases in the entire ruralmarketing system. Therefore, one needs to have good understanding of the role or ruralretailers in rural India. As we know, retailers undertake a wide range of activities such asdetermining consumer needs, finding a supplier, buying, transporting, pricing and promotionexercise. No doubt the retailer is a key source of information for the entire range of entitiesfrom manufacturers, wholesalers, buyers etc. As per a study conducted in the eastern UP belt,almost 30% of retail outlets were managed by females. More than 70% of retailers from ruralareas depended on the nearest feeder centre for their purchases, 20% preferred the haat ormela and the rest preferred the city. Product lines displayed and sold by retailers indicated that differences persisted fromvillage to village. Each village represented its preferences, which were quite different fromthese of the adjoining villages. While big-retailers were dealing in 60 to over 100 items,small retailers were dealing in only 30 items. -40-
  41. 41. In order to maintain regular sales, retailers follow a strict schedule. Thirty per centvisit market (feeder centre) daily, 40% visit market weekly for replenishing the stock, 20%visit bi-weekly and rest as per need. It is not compulsory that the retailer himself will go formaking purchases, he may ask favour of fellow retailers, relatives or even neighbors. Thisnot only saves his time but also is economical. In order to attract customers, retailers alsoprovide credit facilities. As most of the regular customers are neighbors and relatives, credit facility becomesan integral part of retail transactions. Seventy per cent prefer cash credit transaction, whereasthe rest 30% go for cash transaction. Retail network is an important link between a consumer and a producer. They provideinformation regarding quantity of pack, promotional schemes, influence of advertisement,consumer feedback, etc. Doubts in respect of credit facility still persist. Retailers are goingfor diversification in product line. Female-owned shops are coming up. The study ofretailer’s behaviour, requirements and network is crucial for strategy in respect of the ruralmarket. Existing retail formats available in rural India are retail outlets within village, feedercentre or market, melas, haats and shandies and hawkers. Covering 5.57 lakh villages fordistribution appears to be a formidable task. Most of the corporate have concentrated theirefforts on rural areas which have a population of 2,000 persons or above. The percentage ofsuch villages is merely 10% of the total number of villages in India. Therefore, for villageswith less than 2,500 populations, the distribution has been left to the initiative of theshopkeepers and dealers in larger villages and to the shopkeepers of smaller villages (withinthe village retail set-up). At the same time, the age-old mobile department stores, namely haats/shandies, etc.,(periodic markets), play an exceptional role in reaching to the rural consumers. Ruralconsumers have sufficient opportunities to make a choice not only in respect of products andbrands but also regarding retail formats (haats, retail outlet within villages, hawkers andfeeder centres). -41-
  42. 42. RETAIL OUTLETS WITHIN VILLAGES These are basically run at low scale, mostly as a secondary business activity. Theydeal in limited product and limited brand variety within each product category. The numberof retail outlets is subject to the population of villages in India. Villages with less than 500may not even have one shop. Rural areas having a population of more than 1500 enjoy astrong parallel retail format set-up.PERIODIC MARKETS (SHANDIES/HAATS/JATHRAS) Periodic markets are traditional places where the rural consumers congregate as arule. While shandies/haats are held on a particular day every week, periodic markets arenormally timed with religious festivals. These places attract a large number of itinerantmerchants and temporary shops are set up to sell all kinds of goods.The importance of haats in the lives of the rural people is evident from the fact that 81% ofthe buyers are regular visitors to periodic markets. Fifty eight per cent visit haats to buyspecific products although more than half of them have similar products available in theirvillages. Most of the companies, across product categories, are already busy formulating their ruralmarketing strategy to tap the potential before competition catches up. The companies withyears of experience in the urban markets are facing serious problems in rural areas in respectof distribution strategy. This limitation age attributed to various factors such as: v Inadequate infrastructure (road, railway connectivity) with highly dispersed and thinly populated villages that need huge expenditure to establish distribution channels. v Inability of the small rural retailers to invest in stocks for multiple products or brands. v Limited or traditional medium of communication and other sales promotion difficulties. v Low per capita income and social, economic and cultural differences of the rural masses as compared to the urban segment. v Low level of exposure to different product categories and product brands. -42-
  43. 43. One of the major challenges for companies is to ensure availability of the product orservice through the presents distribution channel. India’s 6,27,000 villages are spread over3.2 million sq. km; about 700 million Indians live in rural areas and approaching them is notan easy task with the existing retail infrastructure. However, given the poor state of roads, itis an even greater challenge to regularly transport products to the far-flung villages. Any serous marketer must strive to reach at least 13,113 villages with a population ofmore than 5,000. Marketers must trade-off the distribution cost with incremental marketpenetration. Over the years, India’s largest MNC, Hindustan Lever, a subsidiary of Unilever,has built a strong distribution system, which helps its brands to reach the interiors of the ruralmarket. To service remote villages, stockists use auto rickshaws, bullock-carts and even boats inthe backwaters of Kerala. Coca-Cola, which considers rural India as a future growth driver,has evolved a hub and spoke model to reach the villages. To ensure full loads, the companydepot supplies twice a week to the large distributors who act as hubs. These distributors appoint and supply once a week smaller distributors in adjoining areas.LG Electronics defines all cities and towns, other than the seven metro cities, as a rural andsemi-urban market. To tap these unexplored country markets, LG has set up 4.5 area officesand 59 rural/remote area offices to cater directly the needs of the rural consumers. The problems of physical distribution and channel management adversely affect theservice as well as the cost aspect. For solving this problem company can use their deliveryvans, which can serve two purposes—it can take the products to the customers in every nookand corner of the market and it also enables the firm to establish direct contact with them andthereby facilitate sales promotion. However, only the bigwigs can adopt this channel. The retail industry in India is highly unorganized and predominantly consists of small,independent, owner-managed shops. Retiling is India’s largest industry, accounting for 13%of the GDP. There are around 5 million retail outlets in India. Food sales constitute a highproportion of total retail sales. The traditional retail formats refer to retail formats that have long been part of the retaillandscape of India. They include formats like kirana and independent stores that are typicalof the unorganized retail sector and also the most administratively organized form of Indianretailing—co-operatives and government controlled retail institutions. -43-
  44. 44. RETAIL CUSTOMER Consumer buying behaviour refers to the buying behaviour of the ultimate consumer.Consumer behaviour is the study of how consumers make decisions to use their respectiveresources such as time, money and effort for buying, using and disposing goods and services.The behaviour of humans as consumers is complex. Marketers’ understanding of the driversof consumers’ buying behaviour will help them to serve their customers effectively andefficiently and attract new customers. In the retailing context marketers are required tounderstand customers’ shopping behaviour, which includes decision variables regarding,among other things, brand selection, shopping timing and choice of retail format and store. Consumers’ shopping behaviour can be understood by analyzing the factors thataffect behaviour. These factors could be demographic, psychological, environmental orrelated to the lifestyle of the customer. It is equally important for the retailer to identify thevarious stages in the consumer decision-making process and the major influences at eachstage. This would make possible an effective retail marketing strategy.WHY DO PEOPLE SHOP? It has been suggested that consumer shopping activities are influenced by personaland social motives. Consumers’ motives are important and positively related to their pleasureand satisfaction while shopping in terms of retail choices.Personal Motives v Role playing—shopping activities are learned behaviours and are expected or accepted as part of one’s position or role, such as mother or housewife. v Diversion—shopping may be motivated not by the expected utility of consuming, byt the utility of their buying process itself. Thus, emotional states or moods may explain why or when someone goes shopping. v Learning about new trends—shopping provides consumers with information about trends and movements and product symbols reflecting attitudes and lifestyle. v Physical activity—it involves considerable amount of exercise. v Sensory stimulation—shopping can provide sensory benefits such as looking at and handling merchandise, listening to the sounds and smelling scents. -44-
  45. 45. Social Motives v Social experience outside home—shopping can provide opportunities for seeking new acquaintances, encounters with friends or just ‘people watching’. v Communication with other similar interests—it provides opportunity for interactions with other customers or sales people. v Peer group attraction—certain stores provide a meeting place where members of peer group may gather. v Status and authority—shopping may provide an opportunity to attain status and power by being waited. v Pleasure Bargaining—shopping may offer the enjoyment of gaining a lower price through bargaining comparison shopping or visiting special sales. Having understood why people shop it is important to analyze the factors that affect the consumers’ decision making process regarding what, when and from where to shop. FACTORS AFFECTING CONSUMER DECISION-MAKING A consumer’s purchase decision tends to be affected by the following four factors: 1. Demographic 2. Psychological 3. Environmental 4. LifeStyleDEMOGRAPHIC FACTORS PSYCHOLOGICAL FACTORSGender NituvesAge PerceptionOccupation LearningEducation AttitudeFamily size PersonalityIncomeENVIRONMENTAL FACTORS LIFESTYLEPhysical Environment Activities and interestsSocial Environment—culture, social class Nature of occupation -45-
  46. 46. DEMOGRAPHIC FACTORSDemographic factors are unique to a particular person. They are objective, quantifiable andeasily identifiable population data such as sex, income, age, marital status etc. It alsoinvolves identification of who is responsible for the decision-making or buying and who isthe ultimate consumer.PSYCHOLOGICAL FACTORSPsychological factors refer to the intrinsic or inner aspects of the individual. Anunderstanding of consumers’ psychology guides the marketers’ segmentation strategy.ENVIRONMENTAL FACTORSEnvironmental factors cover all the physical and social characteristics of a consumer’sexternal world, including physical objects, spatial relationships, the social factors , co-customers, reference groups, social class . The environmental factors influence consumers’wants, learning, motives, which in turn influence effective and cognitive responses andamong other things the shopping behaviour of the individual.LIFESTYLELifestyle refers to an individual’s mode of living as identified by his or her activities,interests and opinions. Lifestyle variables have been measured by identifying a consumer’sday-to-day activities and interests. Lifestyle is considered to be highly correlated withconsumer’s values and personality. An individual’s lifestyle is influenced by, among other things, the social group hebelongs to and his occupation. For example, double-income-no-kids (DINKS) families inmetros shop very regularly at the super malls because of the limited time at their disposal andthey also look for entertainment while shopping on weekends. At the same time, they arehigher spenders than, for e.g., single-income families. A study by highlights that Indian working women have to balancetheir wardrobe collection based on requirements of different occasions related to professionalworkplace or family gathering. -46-
  47. 47. Dress working women prefer for different occasionsOccasions Western wear Ethnic wear TotalIn Office 66.7 31.3 100At Home 77.8 20.2 100To Party 69.7 30.3 100While Shopping 85.9 11.1 100During Festivals 3.1 93.9 100Family Occasions 17.2 80.8 100While Travelling 89.9 10.1 100Source: imagesfashion.comMen—The Major Decision-MakerIn India consumption-related family decision-making in all areas—ranging from which carsto buy to what cloth manufacturers to patronize—is dictated by men when it comes to themost upscale market segment in India.WHO DECIDES? Self Spouse Joint Family Elders ChildrenBuying a house 25% 5.8% 20.8% 30.1% 14% 0.4%Child’s marriage 7.7% 5.9% 21.8% 18.7% 11.5% 4%Own marriage 20.4% 2.5% 6.2% 22.4% 29.7% 0.9%Child’s education 15.1% 6.6% 34% 12.5% 5.6% 4.6%Taking a loan 31.4% 5% 24.3% 18.1% 9.2% 0.6%Fixing monthly 24.2% 10.3% 33.3% 18.5% 11.2% 0.6%BudgetBuying entertainment 21.4% 8.2% 33.4% 26.7% 7.4% 1.6%Durables, such as TVsBuying durables such 19.3% 10.7% 33.3% 26.2% 8.2% 1%as washing machinesDeciding on holiday 20.6% 6.1% 28.4% 31.8% 4.5% 5.6%destinations -47-
  48. 48. CONSUMERS’ IMAGE OF RETAIL STORES A consumer’s image of a store is the summation of his attitudes towards variousaspects of that store. Retail marketers have provided considerable importance to consumers’attitude and images in store selection and rejection. Every retail store possesses anindividuality that differentiates it from its competitors. A retailer must devise a strategy tocommunicate its individuality or personality across to its target segments to build theirconfidence in its merchandise and services. Consumer decision-making is a process of matching self-imaged with the image ofrelevant retail store to meet their specific needs. It is argued that where there is some degreeof congruity of individual’s self-image and his image of a store or brand, there is a strongpossibility of positive behaviour towards that particular store or shopping centre. Themeasurement of consumers’ images of the store and measurement of consumers’ self-imagesaid retailers in segmenting the consumer population into groups by demographiccharacteristics or patronage practices based on differences in the image of the retail store orshopping centre.RETAIL IMAGE DIMENSION To measure the image of a retail store or shopping centre, it is essential to identifyand aggregate the relevant consumer attitudes. Lot of work on factors influencing consumers’attitudes towards sores in terms of shopping practices and in terms of store character4isticshas been done in the West but it is an emerging field in the developing countries. The mostcomprehensive presentation is Fisk’s ‘conceptual model’ in which he summarizes storequalities as cognitive dimension. These dimensions can be used to identify relevant attitudesand assist in the development of measurement instruments for a particular retail store. These dimensions do not constitute an exhaustive list of retail store characteristics forevery tore to measure the store image. One has to revise the list in respect of the productcategory they are in , the retail format they have adopted and the competition they are facingalong with characteristics of their target segment. -48-
  49. 49. Dimension Determinants1. Locational convenience 1. Access route 2. Traffic barrier 3. Travelling time 4. Parking availability2. Merchandise suitability 1. Number of brands stocked 2. Quality of line 3. Breadth of assortment 4. Depth of assortment 5. Number of outstanding departments in the store.3. Value for price 1. Price of a particular item in a particular store. 2. Price of same item in another store 3. Price of same item in a substitute store 4. Trading stamps and discounts4. Sales effort and store services 1. Courtesy of sales clerks 2. Helpfulness of sales clerks 3. Reliability and usefulness of advertising 4. Billing procedures 5. Adequacy of credit arrangements 6. Delivery promptness and care 7. Eating facilities5. Congeniality 1. Store layout 2. Store décor 3. Merchandise displays 4. Class of customers 5. Store traffic and congestion6. Post-transaction satisfaction 1. Satisfaction with good in use 2. Satisfaction with returns and adjustments 3. Satisfaction with price paid 4. Satisfaction with accessibility to storeDepartment store image Determinants -49-