Indian retail report 2012


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Indian retail report 2012

  1. 1. The Indian Kaleidoscope Emerging trends in retailSeptember 2012
  2. 2. ForewordIndia’s retail market is expected to cross 1.3 trillion USD by 2020 from thecurrent market size of 500 billion USD. Modern retail with a penetrationof only 5% is expected to grow about six times from the current 27 billionUSD to 220 billion USD, across all categories and segments.The recently unveiled Vision 2023 by Chief Minister Selvi J Jayalalithaawill ensure that Tamil Nadu reaches the numero uno position in the next11 years in all parameters enshrined in the Human Development Index(HDI) to make the state an ideal destination for foreign and domesticinvestments. The CM’s emphasis on agriculture including cold storageand associated logistics, as well as terminal market complexes promisesto collectively result in a booming retail market.This report aims to identify key issues and recommend possible solutionsto directly and positively impact the growth of this sector. Based on therecommendations, FICCI is expected to interact with stakeholdersincluding government bodies, and relevant institutions.We are privileged to have PwC as our knowledge partner. I thank themfor their contribution and extend my hearty wishes to all those involvedfor their outstanding effort and immaculate execution.P Murari IAS (R)Advisor to President, FICCI, New Delhi
  3. 3. 4 PwC
  4. 4. Contents08 Setting up shop14 The extravaganza33 The high price44 Conclusion45 Retail success stories from Tamil Nadu The Indian Kaleidoscope: Emerging trends in Retail 5
  5. 5. Executive summary Though, the monsoon in India may be deficient but it is raining deals and discounts for the Indian consumers. To attract customers, retailers are sending personalised messages via sms or emails. The Indian retail landscape is evolving from from the brick-and-mortar model to adopt technology for connecting with consumers. The aim is to achieve a complete seamless customer experience. It’s a new world for both retailers and the customers where the latter is the king. Indians spend 25.2% of their time on social networking websites. As we move from the world of skeptics to early adopters to ultimately the tacticians, online retailing and mobile retailing are the new modes of growth. Though the overall sentiment for the sector continues to be a cautious one, margins are subdued and revenue still under pressure. The June6 PwC
  6. 6. quarter results are reminiscent of this. The off-season sale and adventof festival season in the subsequent months will make the second halfof the calendar year a more reasonable. As a strategy, retailerscontinue to focus on improving the operations machinery of thebusiness, shifting to low cost channels, promoting private labels,emphasis on increasing customer base, improving in cost structure,discounts and offers and innovative strategies such as ‘flat discounts’,sale during wee hours of morning or late till midnight, are some ofthem. While it is business as usual for the retailers, the sector isholding its breath for the much anticipated FDI policy. Till then, to beor not to be is the million dollar question.This report aims to highlight the key areas to help global retailersentering the Indian market. Our sections deal with measures thatimpact the top and the bottom line. The Indian Kaleidoscope: Emerging trends in Retail 7
  7. 7. Setting up shop 01 India’s large and aspiring middle class of country’s rural population of 700 75 million households or 300 million million presents an opportunity for individuals want products that are retail and consumer companies that value-driven. The country’s 500 million cannot be ignored. people under the age of 25 have access The current estimated value of the to more money that has additionally Indian retail sector is about 500 billion resulted in independence, aspirations USD and is pegged to reach 1.3 trillion and a demand for products. USD by 2020. The penetration level of Reality check modern retail (currently 5%) will increase six-fold from the current 27 The Indian retail sector accounts for billion USD to 220 billion USD in 2020. over 20% of the country’s gross domestic The Indian retail sector is expected to product (GDP) and contributes 8% to grow at a CAGR of 15 to 20%. Factors total employment. The cumulative driving the organised retail sector foreign direct investment (FDI) inflows include the following: in single-brand retail trading, during April 2000 to June 2011, stood at 69.26 • Higher incomes driving the million USD. purchase of essential and non- essential products Studies like the MasterCard Worldwide • Evolving consumption patterns of Index of Consumer Confidence have Indian customers ranked Indian consumers as some of the most confident in the world. The more • New technology and lifestyle trends confident the consumers are about the creating replacement demand strength of the economy, their personal finances, their career growth, etc., the more they tend to increase their consumption, purchase non-essential products, experiment with products, brands, categories, etc. Besides, the8 PwC
  8. 8. • Increase in rural income as well as Share of organised urbanisation Country retail to total retail• Increase in easy access to credit and US 85% consumer awareness UK 80%• Growth of modern trade format Malaysia 55% across urban, Tier I, Tier II and Tier III cities and towns Thailand 40%• Rapid urbanisation and growing China 20% trend towards nuclear families South Korea 15% Indonesia 25% Philippines 35% India 5% Source: Media reportsKey players in the Indian retail market are as follows: Pantaloon Retail Ltd (Future Group venture) Over 2 million sq ft of retail space spread over 35 cities with 65 stores and 21 factory outlets Shoppers Stop (K Raheja Group venture) Over 3.21 million sq ft of retail space spread over 23 cities with 51 stores Spencers Retail(part of RP-SG Group) Retail footage of close to 1 million sq ft across 45 cities with 200 stores Lifestyle Retail (Landmark Group venture) Approximately 15 lifestyle and eight Home Centre stores 74 Easyday stores with plans to invest about 2.5 billion USD over the next five years to add about 10 Bharti Retail million sq ft of retail space in the country Reliance Retail 700 stores with a revenue of 7,600 crore INR 575 stores with approximate revenue of 2,000 crore INR. Recently, purchased stake in Aditya Birla ‘More’ Pantaloon Retail Tata Trent 59 Westside stores, 13 Starbazaar hypermarkets and 26 Landmark bookstoresSource: Media reports, company websites The Indian Kaleidoscope: Emerging trends in Retail 9
  9. 9. Foreign entrants in the Indian segment Inflationary effectare as follows: India’s growth has slowed to 6.5% in the• Germany-based Metro Cash & Carry current fiscal, dragged down by a nine-year opened six wholesale centres in the low of 5.3% in the March quarter on country. account of poor performance of the• Walmart with Bharti Retail, owner manufacturing sector. This is due to the of Easyday stores. cascading effect of the global slowdown• British retailer Tesco Plc (TESCO), that originated from developed economies signed an agreement with Trent Ltd and has impacted both China and India, (Trent), the retail arm of Tata Group the major contributors to the world GDP. to set up cash-and-carry stores. However, despite these short-term• Carrefour opened its first cash-and- difficulties, the medium outlook is more carry store in New Delhi. positive, states an OPEC report. From the sector’s perspective, bothThe Economic consumers and retailers are beingPendulum negatively affected as currently inflation is supply-based, rather than demand-driven.The global economy is decelerating. In Before the downturn, consumers2012, majority of the economies are subsidised their spending through credit orwitnessing slow growth as compared to dipping into savings, but this is no longerthe year before. Even though the US achievable or sustainable. As aeconomy has started to show some signs consequence both margins and sales areof recovery, failure of the government to under pressure.come out with a conclusive fiscal plan isaffecting investor confidence, A strong GDP growth, rising consumeremployment creation and the capital confidence, consumption-based behaviour,market. Similarly in Europe, the euro increasing income, and a large pool ofcrisis has had a negative impact on the consumers provide windows ofconsumer sentiment. Besides, countries opportunities for global retailers to investsuch as Greece, Spain and Italy are in the Indian market. Largely deals areseething under the economic pressure. happening in the online model whether it isThe growth in China is also slowing due pharmacy, apparel, baby care or tightening of its monetary policy. Considering that we have the youngestIndia too has been affected. To add to population in the world, such companiesthe woes, we are facing high inflation are bound to see growth, making itacross economies. inevitable for financial investors to be present in this segment.10 PwC
  10. 10. Mergers and acquisitions trend is sustainable although steps need to be taken towards improving the supplyPwC’s 15th Annual Global CEO Survey chain and long-term strategies.indicated that half of CEOs indeveloped countries believed that Some of the recently announced dealsemerging economies are more include the following:important to their company’s future.With the developed markets witnessing Investor Investee Sectoran economic turmoil, emerging SAIF Ventures InkFruit Online apparel sitecountries are fast becoming the retail Tiger Capital, Helionhotspot for foreign players. In the past Online consumer durables site Ventures, Accel Indiafive years, retail chain giants such as Fidelity Bigshoebazaar India Online shoe site for wholesale purchasesWalmart, Tesco and Metro Group, saw Tiger Capital Online jewellery siterevenues in developing countries grow2.5 times faster than their home Sequoia Capital India Lovable Lingerie Innerwearmarkets. India provides an opportunity Standard Chartered Privi Organics Indian aroma chemical products manufacturerfor retailers seeking to make Private Equityinvestment in the emerging economies Source: Media reportsto participate in the growth andincrease their global presence However, the existing restrictive FDI • Ferragamo with DLFThe nascent stage of organized retail policy framework continues to pose a • Damas with Gitanjali Lifestylepenetration in India and the shortage of challenge and drive the M&A activity. • Inditex (Zara) with Trentavailability of cash for expansion will Ever since the policy on single brandprompt more business activity in the • Burberrey with Genesis Color retail policy was announced in 2006,sector. This has been the primary more than 60 brands have set up retail • S Oliver with Orient Craftreason for the M&As in this sector, operations in India in strategic joint The current FDI Policy on single brandespecially in the e-commerce segment. ventures with Indian partners. Some of specifically require the foreign investor toIn 2011, the e-commerce sector raised these include: be the brand owner, and therefore, itover 500 million USD from 67 deals as closes doors for any direct investment by • Marks & Spencer with Reliance Retailcompared to 2010 which saw only 18 an international private equity player ininvestments worth 112 million USD. • Georgia Armani with DLF this segment.This is backed by strong fundamentals • Fendi with Chordia Fashionssuch as critical mass of Internet users,broadband penetration and 3G growth,rising middle class, improved paymentgateways and logistics. Some expertsfeel that this may just be a bubblephenomenon, while others feel this The Indian Kaleidoscope: Emerging trends in Retail 11
  11. 11. In January 2012, the government further year 1997 (requiring governmentliberalised the policy on single brand approval for 100% FDI). This was furtherretail trading by increasing the FDI cap liberalised in 2006 by placing thefrom 51 to 100%, subject to certain segment under automatic route. Sinceconditions. This policy has opened doors 2006, the FDI in wholesale trading hasfor further M&A activity, especially for been freely permitted. In April 2010, thethe following: government issued certain operational• Existing joint ventures, where foreign guidelines for Indian companies with FDI investor may wish to acquire the engaged in wholesale trading activities. Indian partners stake Some of the operational guidelines have• Existing licenced or franchise substantive impact on the M&A activities arrangements, where the foreign in this space. The key ones are as follows: principal may now wish to set up • Business customers need to have a stores under 100% ownership and government licence or registration to acquire the existing business of such act as such licencee or franchisee in India. • Group company sales are to beOn account of certain ambiguities in the restricted to 25% of wholesalepolicy, M&A on these have been relatively turnoverslow, but it is expected to pick up as and Currently, most e-commerce companieswhen these uncertainties are ironed-out and multi-brand retail trading companieswith further liberalisation in the policy. have adopted B2B route for raisingThe multi-brand retail sector is foreign capital or formed strategic jointwitnessing calibrated liberalisation, while ventures with foreign retailers. A typicalcurrently under prohibition. The trading structure is as follows:sector was first opened for FDI with aformal policy on wholesale trading in the12 PwC
  12. 12. The primary advantage of this is that the to conditions. If the policy is announced,foreign investor or retailer gets an early the following are some of the possiblemover advantage combined with the M&A activities:hope that the businesses can be • New joint ventures with Indianconsolidated in the future as and when partners for new retail venturethe policy is liberalised. Currently, 100% • Acquisition of equity stake or newFDI is allowed in B2B trade. Therefore, investments by foreign retailers inthe FDI in this segment helps in building existing Indian retail companiesup the back-end infrastructure and • Consolidation of the above B2Bvendor relationships. structures into a single entity.Though, some of the challenges that The current proposed policy frameworkfraught such commercial agreements in this segment, as announced ininclude inability of foreign investor to November 2011, contemplates conditionsparticipate in front-end retail business, such as minimum investment of 100supply chain inefficiencies, financing the million USD with 50% of foreign capitalroll-out of retail stores, etc. used to develop back-end infrastructure.There is high expectation from the Such conditions will be more amenable toproposed policy initiatives whereby the large hyper-market formats and may notgovernment is contemplating permitting immediately benefit speciality retail suchFDI in multi-brand retail trading, subject as pharmacy, electronic goods, etc. The Indian Kaleidoscope: Emerging trends in Retail 13
  13. 13. The extravaganza 02 From General trade to Modern trade Success story and now going virtual, Indian retail With over 32 categories, thousands of sector is going through its own lifecycle. products from more than 100 FMCG However, important to note is that the companies to choose from, the emergence of one mode does not ‘AaramShop’ concept has been launched hamper the existence of the other. In on a pilot basis in the Delhi and National this section, we explore how the kirana Capital Region (NCR). Over 3,000 stores have reinvented themselves to traditional grocers have partnered with beat the hype around modern trade. it. Selling groceries online is not new in Then we talk about how much India. Just last year, over a dozen online weightage does customer experience portals mushroomed across the country carry and then we move on to the selling a wide-range of products-from multichannels of retailing. household items to food. The front-end for these e-grocers were websites and the Co-existence of the back-end primarily warehouses. kiranas with Traditional shopkeepers are now latching on to portals such as www.araamshop. organised retail com and The coexistence of the local kirana store When a customer orders online through and the organised players is a no- these portals, it is communicated to the brainer in the current context of the closest shopkeeper partner near his or her Indian retail sector. There are no two house who in turn delivers the purchase ways to it. Organised players target order at home. This gives another point of cities and not the hinterlands. It is the sale to the customer and at the same time kirana guys who take care of the daily lower overheads for the seller who does household needs in those areas. In fact, not have to invest in a physical shop. these neighbourhood mom-and-pop stores continue to be the only point of The balancing act sale for most FMCG players to rural The advent of FDI and MNC players in the areas of the country. The kiranas have retail sector was considered to impact the reinvented themselves in the cities to kirana stores. However, these stores have stay relevant to its target audience. existed since ages and they still continue14 PwC
  14. 14. to be at the beck-and-call of many To outdo the modern trade players, Future outlookhouseholds. Their presence in the midst kirana shopkeepers conduct bulk The one difference between theof a residential area is a big advantage. A purchases from organised players and traditional kirana shops in India and thesmall item, be it a loaf of bread or few avail volume discounts. This has helped traditional mom-and-pop stores in theeggs gets delivered at the doorstep. In them to stay relevant to customers’ needs West is that the latter, historically, wereIndia, kirana and traditional retailing still and at the same time earn a higher relatively inefficient as compared to thecontinues to be the single largest outlet margin for themselves. Private label is the modern trade. However, it is proved thatfor sale of FMCG goods. Even the product cash-cow for most players in the the traditional kirana stores and outlets inmix that the neighbourhood shop stocks developed markets. Similar phenomenon India are ultra-efficient and have beenvaries from small cottage industries, is visible in India as well. We see that the able to compete very successfully withespecially ayurvedic and other healthcare cash-and-carry players are pushing their modern retail for a very long period ofproducts, a few FMCG products such as private labels through the kirana store time. Modern trade has expandedsoaps and shampoos, and taste-driven rather than the modern retailers. This dramatically, but the classical, traditionalproducts such as local biscuits and poses serious threats to the FMCG players kirana and convenience outlets havesavouries, which cannot make it to a big whose prime point of sales is the kirana grown, modernised and becomeretail supply chain. outlet. self-service outlets to do remarkably well.Modern retail has been in existence for The experience of China and Indonesia New initiativessometime now and there have not been shows that traditional and modern retailmany cases where kirana shops had to can co-exist and grow, albeit at different The political mayhem over fears ofshut down due to an organised player rates. While kirana stores may be extinction of these shops seemscoming up in the neighbourhood. There growing at 2 to 5%, organised retail may misplaced. Such is the reach and power ofhave also been certain external be growing at 20 to 40% CAGR or more. these local shops that LIC, the biggestenvironmental factors such as high This is due to the fact that organised retail insurance company in India has proposedrentals, demographic change in the is growing at a low base. In Indonesia, to include them as their agents for sellingconsuming class and increased disposable even after the emergence of its micro insurance plans. Players such asincome that led to a slower growth in the supermarkets, 90% of fresh food and 70% the Future Group plan to expand theirtraditional retail. In fact, large retailers of entire food is still controlled by corner store format KBs Fair Pricehad to reinvent and evolve their business traditional retailers. In Japan, organised (received funding from Japan’s retailmodels to arrive at a format that could retailers co-opt several kirana stores and chain Lawsons) through the existingcompete with a local mom-and-pop-shop. hawkers drawn from the pool of shops and help to revamp, refurnish and traditional retailers and are upgraded rebrand the outlets while providing with capital infusion and trained to meet back-end support. The idea is to promote the demands of customers. inclusive retail growth. The Indian Kaleidoscope: Emerging trends in Retail 15
  15. 15. Kirana stores are rapidly adapting credit card fraud or the authenticity of the Our discussions with customers acrosstechnology to remain in touch with their vendor. They also have reward points for various sectors provided some usefulcustomers. Today, grocery retailers are building loyalty. observations. Some of the customergoing online. These players are also has a responses are as follows:particularly popular in the metros, sophisticated website. They accept creditcatering to the Internet savvy customers, cards payments and is very user-friendly.who have limited time. is another services the Delhi NCR retailer who deals exclusively with delivery I walked into a store where a signarea and offer home delivery free-of-cost of organic grocery. was displayed: In case you do notif the bill is over 2,000 INR or they charge find a product on shelf, let us knowa flat 50 INR (which in today’s world is Customer Experience and we shall deliver it at yourless than the cost of fuel one would incur Management home. This, according to me, wasto go to a modern format for shopping an amazing shopping experience.groceries) for delivery. They have a The Indian retail experience has goneturnaround time of one to two days. They beyond the traditional brick–and-mortareven have a clear return policy which is store and includes numerous touch points I had bought two shirts from aimportant for online retailers. such as online stores, social networks, call reputed brand, which were has a common website centres, etc. Changing economic dynamics, used for about two years. Therefor India and the US. In India, they service was some defect in the quality of diverse choices in products and services, the shirts. When I approached theBangalore and Hyderabad and offer free numerous shopping formats and retail store, I was surprised thathome delivery with an extra service unparalleled access to information has they managed to retrieve purchasecharge in a few areas. Their website is empowered customers to expect more from information with the limitedwell-designed and user-friendly. The their retail experience. information I provided. Theprices are also competitive with the retailer also allowed me to The recent economic downturn has taughtregular grocery stores. They currently exchange the shirts. This was truly discipline to the customers. In today’soffer ‘cash on delivery’ mode of payment a wonderful customer experience. rapidly changing and digitally connectedwhich is actually a good way to get world, customers are more value-consciouscustomers to try the website, since while making purchase decisions. Quality, price, discounts,customers do not have to pay anythingupfront and do not have to worry about Customer testimonials availability of products across various categories and express checkouts are some of the few aspects of a complete customer experience.16 PwC
  16. 16. Customer experience lifecycle In the purchase phase, the customer takes the buying decision on the product andToday, a customer interacts with the pays for it. Various touch points in thisretailer multiple times before, during phase include the web, the physical store,and after the purchase. The interaction sales associates, assortments, layouts, etc.may happen across multiple channels.Therefore, it is important for the In the service phase, the customer serviceretailer to provide complete and and loyalty programmes are the keyconsistent customer experience across touch points that the retailer has with thethese channels. customer. After sales customer service includes installation of an appliance orCustomer experience lifecycle return and exchange of merchandise. Evolution of customer experience Customers today care more about the retailing experience than they did in the past. Their expectations from retailers go beyond just shopping of goods and services. Today, consumers are looking for a personalised, seamless and distinctive experience from the retailers.In the research phase, the customeranalyses the information available fromvarious touch points, such as word ofmouth, newspaper advertisements,mailers or the web, etc. services. Today’sconsumer is looking for a personalised,seamless and distinctive experience fromthe retailers. The Indian Kaleidoscope: Emerging trends in Retail 17
  17. 17. • Localised experience: Given the • Distinctive experience: Apart • Stores should be conveniently amount of information retailers have from the competitive price, the located and have the right layout. about the customer behaviour, buying customers seek a distinctive • Customers want to be entertained habits, etc. the consumer expects shopping experience driven by and even educated while they shop. the retailer to ensure that the goods best customer service. Retailers and services are available in the have developed customer friendly • Retail store staff members (sales stores when the customer walks in to return or exchange policies, persons as well as cashiers) are the shop. The retailers need to establish loyalty programmes, customer brand ambassadors for the store. the relevance with the customer. appreciation days, etc. Retailer They are in direct contact with Individual attention, personalised use better customer service to the customers at various touch promotional offers, best utilisation of differentiate between retailers, points and deliver the experience. time and money are few other basic generate customer loyalty, increase Continuous investment is required expectations that customers have customer purchases and create in the training and coaching of from retailers. positive brand image. Retailers staff to deliver on customers’ have started giving promotional expectations.• Seamless experience: Consumers discounts via SMS to customers • It is important to stay connected want to traverse multiple channels when they are in the store or in with the customers today to remain easily and enjoy a seamless the mall where the retailer has the the top-of-the-mind recall when experience. This means the physical store. they shop. store, web, catalogue, call centre and kiosks have to be integrated Apart from the above, various factors • There is a growing demand for to ensure a consistent customer that affect the customer experience customised products, be it cars, experience across these channels. include the following: apparel, computers or music. Best Buy in the US provides seamless experience online as well as in • Customers in the do-it-yourself • Easy returns policy is a must in the store. Customers can research (DIY) segment (example IKEA) e-commerce. Retailers need to set online and come to the store for a seek customisation and those in the up reverse logistics solutions to physical experience. It also offers do-it-for-me (DIFM) segment seek make returning products bought same pricing, offers, to the customers convenience. online easy. online as well as in the store. • Customers expect quick service even at retail stores, not just in fast- food restaurants.18 PwC
  18. 18. The dynamic retailer Retailers today know that customers have a wide variety of products and formats toConsumers are leading the way in choose from. It is important for themultichannel shopping, with many retailers to create bond with theretailers lagging behind in meeting their customers by offering personalisedneeds. Today’s global retailers have a experience and be of relevance to thehuge opportunity to enhance the customers. In todays environment,mechanisms necessary to keep up with retailers need to have single view of theshoppers who are demanding more customer, understand their buyingcustomisation in terms of delivery, behaviour and yearning to engage, andreturns, product choice and number of demonstrate loyalty to the customer.channels from which to choose. The global customer requires retailers toRetailers need to become far more be more connected, more empoweredinnovative with their online presence. and more proactive than ever before.They should refresh their physicalformats to emphasise quality andcustomer satisfaction, and not just priceand selection (which is generallyresearched online). They must align Connectedthemselves with the buying tendencies of • Seamless andthe growing middle-class customers in consistent experiencethe emerging markets. across all channels Empowered • Improved productivity Proactive and customer service • Execute with insight by across global workforce analysing information • Continue to be relevant to customer The Indian Kaleidoscope: Emerging trends in Retail 19
  19. 19. Customers looking beyond loyalty For example: Target in the US has beenmanagement in driving customer able to predict if a woman is pregnantexperience five months before the delivery. This has helped the retail giant provide necessaryCustomers are loyal to a brand or retail products and services to the loyalstore or restaurant not because of any customer and also run targetedpromotion, discount coupon, or loyalty promotions influencing buyingmembership but for the customer behaviour, thus driving sales.experience they derive. One of the key performance indicatorsTodays customer is flooded with that measure the effectiveness of theinformation about the variety of loyalty program is the Loyalty Customerproducts and choice of formats for Sales vs. Total Sales. This tells theshopping. He/she interacts with retailers retailer how much of total sales from avia multiple channels, be it the point of channel are from its loyalty customers.sales or the e-commerce portal. But it is important to analyse how manyRetailers today are working towards loyalty customers are redeeming theshifting the focus from price to value, points earned, which shows the truerelevance, differentiation and picture of customer loyalty to thecompetitiveness, which in the long run retailer.will create value for the customers andthus drive sales. Answering the following questions will help retailers increase their loyalCustomer loyalty is a tool used by the customer base and thus increase sales:retailers to capture the customer baseand thus customer insights. Retailers • Am I loyal to my customers?use business intelligence systems to • What value do I add to theanalyse the customer data, helping them customer?improve merchandise and assortments, • How am I different from others indefining and executing targeted the market?promotional campaigns, etc. this in turn • How do I continue to be relevant toleads to better shopping experience and customer?incremental sales.20 PwC
  20. 20. PwC model for operational • Level 3- Building the muscle:excellence in retail This level aims at building capabilities that give theLeading retailers across the world use organisation a competitivethe operational excellence model to advantage in the market and helpprovide a superior shopping experience deliver products and services atto the customers. The journey of a lower cost. These capabilitiesoperational excellence is logically and include lean operations, leanscientifically divided into four levels. marketing, lean organisation, etc. The focus is on generating• Level 1- Basic assurance to quantum benefits once the stakeholders: This level aims at foundations are in place. setting up routine management systems to enable all processes to • Level 4- Develop competitive run at a basic level of stability. This superiority: At this level, the is done by the last-mile continuous company aims at becoming a improvement teams. The focus benchmark in the industry to is on getting quick wins and continuously increase the gap employee engagement. between itself and the competitors.• Level 2- Quality and customer We can help our retail clients satisfaction: This level aims customise these levels to their at refining and standardising environment and enable them to practices to ensure higher quality objectively evaluate their progress and customer satisfaction. Variability reduction to improve process capability using concepts like Six Sigma is one of the main themes of this level. The Indian Kaleidoscope: Emerging trends in Retail 21
  21. 21. Retailers across sectors have gainedsignificantly from such programmeswhich have had an impact on theirrevenues, cost, quality andresponsiveness22 PwC
  22. 22. Category: Value fashionMax Retail: Offering value fashion at keen prices Sector snapshot Company profile Growth opportunities exist in Max Retail: Fashion need not be India’s apparel market… expensive! PwC’s thought leadership report Strong Max’s focus on providing “fashion and Steady – 2011 Outlook for the Retail at keen prices” is generating strong and Consumer Products Sector in Asia current growth… indicates that the Indian apparel market Keenly priced apparel is priced lesser is relatively untapped across all than affordably priced apparel even! categories. Clothing sales have been Keenly priced apparel is especially rising steadily in recent years, supported important in developing markets by a large market of young consumers since customers need to be educated and an increasing interest in Western about fashion, before making the fashion. Apparel companies are using purchase. Max uses its design marketing strategies to build their brand, strength to produce sharply-priced increase awareness and create a apparel that has a high fashion fashionable, lifestyle-oriented image. component. Designers in the Middle Efforts to raise funds from PEs are East along with those in India create enabling apparel brands to grow their and localise fashion for global and store networks, boost production local markets, respectively. capacity, offer new styles, hire design …across men, women, children, talent, develop larger format stores, value, premium, plus-size, etc. establish shop-in- shops, etc. For many Indians, low prices are a Clothing: Market demand growth (% real change) pa key purchase driver. Country 2010 2011 2012 2013 2014 The following factors drive the China 10.9 10.8 10.3 10.9 11.4 growth of value fashion retail: India 6.1 7.6 8.4 8.3 8 • Increasing incomes are enabling Japan 1.6 1.2 1 0.9 0.8 Indian consumers to spend more Taiwan 3.9 4.8 4.2 3.4 3.8 and experiment across products, brands and categories. Source: Strong and Steady—2011 Outlook for the • Apparel is no longer a functional Retail and Consumer Products Sector in Asia, PwC, 2010-14 are forecasts category but one that conveys The Indian Kaleidoscope: Emerging trends in Retail 23
  23. 23. appearance, prestige and image. • Over 50% of India’s population By March 2013, Max will operate 100 Consumers want to buy apparel that is under 25. Young Indians are stores, doubling operations from the is both affordable and fashionable. aspirational, demanding and focussed current 51 stores. Max is the Landmark on apparel that is both Group’s fastest growing offering in India,• The growth of modern trade has helped increase the demand for • Current penetration of apparel in across its formats (food and grocery, both branded and value apparel. the organised retail category is department stores, apparel, etc.). This, coupled with the emergence 10%. This is expected to increase to of new sectors and professional job 30 to 35% by 2015. Tier 2 cities like Coimbatore, Indore, opportunities, has also helped drive Bhopal, etc. are showing strong growth. … and presents long-term potential for Consumers in these locations are demand for office wear. its parent company, Landmark Group. aspirational and view Max as a strong fashion brand. Four critical success factors help define the winners in India’s apparel market. Providing fashion at very competitive prices is a major driver of success for Max. Max does not compromise fashion for price or vice versa. Providing apparel that is beyond normal pricing levels has enabled the chain to grow rapidly Fashion and pricing both within the Landmark Group and within India. Part of offering good fashion is localising the styling (necklines, hemlines, colours, embroidery, etc.). Max localises one-third of its product range sourced from its global headquarters, enabling it to “be global and connect local.” Customer needs and expectations evolve given their exposure to international travel, media, the Internet, etc. Today, the Indian consumer expects a better experience overall: • Availability of apparel: The consumer wants sharply priced, fashionable apparel to expand their wardrobe both at the workplace and at home. Customers no longer want to dress up just for work, they also want to The customer experience look good at home, implying access to choice and range. • Store experience: From the time a customer enters the store to when she/he leaves, she/he must have a good experience across several touchpoints that include: Trial room | Interacting with staff | After-sales experience | Billing at the POS | Store ambience Freshness takes into account new product promotions, new designs, new colours, new styling, etc. Keeping fashion Freshness of category exciting helps engage and retain customers, results in sales, generates repeat traffic, etc. Participants need to build a sustainable business model given that the gestation period for success in the retail sector is long. Sustainable product pricing, offering products that imply longevity, expanding operations in a Long-term business model calibrated but determined manner, etc. are some of the ways in which retailers can convey their commitment to building a long-term presence.24 PwC
  24. 24. Commerce in Emerging models in India The scepticse-commerce We can always argue that the Indian Both the retailers and the consumers have e-Commerce industry is evolving. But on used electronic media cautiously. IssuesWhich movie featured the song ‘Why taking a closer look at the industry, we relating to the use of credit cards, debitthis Kolaveri di’? Few of us might know realise that it will be worth US$ 70 billion cards and online banking have kept somethe correct answer (Tamil film ‘3’), but by 2015 (according to ASSOCHAM) with consumers at bay. The legacy of using thethe majority of 20 million fans of this a steady growth of 35% CAGR. So what touch and feel of the product is a criticalsong who viewed it on YouTube at least are the various e-commerce models at attribute to the decision of buying.once were not interested in knowing play in this industry? We have categorised Internet or the electronic media is largelywhich movie this song belonged to. The the models based on this hypothesis. being used by consumers for search,song almost started a cult. Now there research, price comparison and finallyare several versions of the song, adopted the ‘store locater’ to buy the young and old across the country, The retailers have adopted the interneteventually making Dhanush a channel to have a footprint to positionhousehold name. them among search engines, bill boardsToday, e-Commerce is about how an and name tags. The idea has never beene-channel is used by a user to position to integrate the store supply chain orthe product. It helps create the right inventory to create an electronic, is available on more than one The benchmark has been to wait for theplatform or device and delivers the competitors act first and then understandproduct to the customer instantly. The how they are using the web to marketpayments can be made online or products and then follow the lead.through cash on delivery.We will now look at how the new The retailer and consumers can be ine-commerce models are emerging and different stages in their approach to thehelping both consumers and retailers. market. The Indian Kaleidoscope: Emerging trends in Retail 25
  25. 25. The early adopters shop online. This represents a 40% rise from the 627 million online shoppers There are some who have been buying recorded for 2009. The report confirms and selling on the web since the last that 85% internet users in this period decade or the golden era of Indian shopped online. The majority of broadband internet story. Sites such as e-shoppers were from South Korea, where and have wooed a staggering 99% internet users were also the customer for years. The consumer e-shoppers. Japanese, German and UK has always been attracted to the value consumers rank second while Indian add and convenience of doing multiple shoppers rank third. E-shopping has things at one time. The quality of gradually become the most favoured service and merchandise was not the online activity after emailing and surfing. focus. This breed of early adopters has constantly pushed the retailers to think According to Google, India has more than of new mechanisms to lure customers to 100 million internet users, half of whom internet shopping. make online purchases, and the number is growing every year. With such a large The global online retail industry has market size, retailers as well as consumer gone through a lot of transformation goods manufacturers are entering the over the past two decades. E-commerce web space to attract potential customers. has become very popular in the areas of apparel, arts and handicrafts, books, car Competing in a high-pressure business rentals, computers and electronics, scenario has become a challenge for cosmetics, financial services, gifts and retailers. Retailers are looking at the novelties, etc. internet as an effective alternative sales channel, which gives them direct access The retailers have managed to maintain to target customers. Online retail (also the faith of consumer in the internet by known as e-tail) is a web-enabled being able to integrate the conventional interface between a retailer and its target supply chain with order management consumers for selling products and from the web. Commerce was also services on the web with the facility of changing with mobile payments taking ecommerce. These kinds of retailers are shape. A 2011 global online survey by also known as e-tailers. Almost all big Nielsen suggests that about 875 million retailers now have presence on the web. consumers across the world prefer to26 PwC
  26. 26. The tacticians online retailers are Staples Inc, Home According to eBay, Indian online shoppers Shop 18, Indiaplaza, eBay India, Future remain brand savvy, even when they areGlobal online shopping giant Amazon. Bazaar, Indiatimes and Rediff. Easy shopping online. The eBay India Censuscom recently launched a new service for availability of broadband services and has found that brands such as Sony,Indian consumers, claiming to offer 1.2 increasing internet penetration is Nokia, Samsung, Apple and Reebokcrore products from both local and supporting the growth of online retailing. continue to top buyers’ charts. Lifestyleinternational retailers. The increasing purchasing power of the products, such as cosmetics, jewellery,The company claimed that Indian customers is set to bring an online watches, fashion products and fitnesswould offer options from hundreds of shopping boom in India. One of the latest equipment account for over 45% of eBay’sonline and offline retailers, including additions to online retail is advertising sales in India.Homeshop18, Hidesign, Gitanjali, through social media websites like According to industry leaders, portalsFabindia, Bata India, Dabur, Microsoft, Facebook, Twitter, Google+, etc. Apart offering daily deals and discount offersReebok, and from website technologies, retail leaders with good delivery services attract theIt will have more than 90 lakh books and are trying to adopt video, mobile and largest number of online shoppers. “The30 lakh products from more than 14,000 social media strategies with a view to customer behaviour is changingIndian and global brands across more provide richer, more engaging and user dramatically. People are not only usingthan 25 product categories, including friendly experience. the Web to book air tickets and moviemobile phones, cameras, toys and games, It is not only the private sector but also tickets but also do not hesitate in placingbaby products, books, music, movies and the government sector which has woken orders for mobiles, laptops and otherTV, clothing, and jewellery. up to the possibilities that the internet has consumer electronics and homeThis consumer is not only the buyer but in store. This means that today people can appliances,” a senior marketing executivealso the seller. Websites like and not only purchase clothing, utensils, from, an online have made the quintessential furniture, electronics, books, movies, portal, told Mail Today. “Seeing this boldIndian feel more in control and sense of flight tickets, rent cars and thousands consumer behaviour, more companies areownership of doing the ‘deal’. other products online, but they can also collaborating with such daily deal and book railway tickets and even pay their discount sites. All the top consumerAmong Indian states, Maharashtra has self assessment and advance taxes online electronics and home appliancesthe best IT infrastructure, both for through government websites. The days companies are listed with us. In theretailers as well as consumers. Mumbai when people had to stand in long queues growing competition space companiesaccounts for a 24% of India’s e-commerce at the stores or spend the whole day to pay with good delivery services score pointstransactions. Some of the popular Indian taxes or buy railway tickets are slowly over others,” the executive said. becoming a thing of the past. The Indian Kaleidoscope: Emerging trends in Retail 27
  27. 27. The tacticians have pushed the e-tail The various incentives of online shoppingenvironment from being connected to include competitive pricing, speed,virtual. E-tail stores are open 24x7. convenience, variety of products, homeDiscounts happen at midnight. Flash delivery and ease of shopping fromdiscount mailers and SMSes are sent out anywhere at any time.and sites see millions of concurrent users However, even though people arelogged in for a few hours. This seems to spending much time and money on thebe a social phenomenon. It is similar to web, they haven’t abandoned physicalthe advent of supermarkets in the late stores. They’re just using them for1990s when people used to queue up for different things. Retailers should nowhours to be able to touch and feel focus on understanding, adopting andproducts which were earlier handed over monetising multichannel them across the counter by thesalesperson. Retailers are trying to targetthe social media to be able to influencethe decision of the buyer. However,monetising social media is still a nebuloustopic. Several papers and researches havebeen done to be articulate the manner inwhich retailers or client at large shouldand are using social media to targetcustomer. We would like to look at thistopic from a multichannel approach andask the question: What are people lookingfor online?Price is a big factor, but it’s not the onlyone: many shoppers are prepared to pay abit more for a big item like a plasma TV ifit means the retailer will also install it,remove the packaging, and take the oldone away. The internet makes it easier toestablish the real correlation betweenprice and value, and what ‘value formoney’ really means for a particularproduct, and a particular person. Source: PwC UK survey on 1000 consumers in the last quarter of 201028 PwC
  28. 28. What areas should retailers • Develop a truly multichannel main organisational structure andconcentrate on for the multichannel business: Online operations need be treated as an integral part of thestrategy? to be treated like any other part of brand proposition, rather than an the company, and not as some sort independent business governed by its• They need to learn new skills and of incubator venture, or an offshoot own rules. develop new tools – and fast. It of the marketing or IT departments. is mostly about getting better and The state of play on multichannel retail is Business development has to become more responsive in marketing business as usual, which demands still evolving, but we believe there are five and merchandising, so that the new business practices, new roles and key factors that retailers should be landing pages of the web store can responsibilities, and new approaches addressing now, if they’re to stay ahead of respond instantaneously to external to incentives and remuneration. the game. events that might prompt a specific E-commerce has to move into the impulse purchase. Many of the more traditional retailers still have a lot to learn about customer relationship management and direct marketing, 1 Most With shoppers consolidating their spending on fewer retailers, the winners will be those who ensure they make it onto the ‘most favoured favored’ list for their large customers. and could gain some useful insights from studying how the catalogue operators exploit their customer data.• Where and what to invest in: Money and resources are always 2 Most Operating in a multi-channel world makes it even more important to understand your most valuable customers, and to be able to serve going to be limited, but the new retail Valuable them when they want, and how they want. environment is throwing out so many new product and service propositions that it can be hard for even the most experienced and professional retailers to know what customers will 3 Most The digital space provides a raft of new opportunities to engage consumers, and to learn from their behaviours from Twitter and Vocal Facebook, to online campaigns and consumer reviews. really want, and what will genuinely create long-term value.• The ‘dark channels’: These are called so because most retailers don’t understand what’s really going on 4 Key New performance measures that reflect the realities of this new multi-channel world are the next essntial building block to making there, but because they need to, if KPIs profitable decisions and choices. they’re to stay ahead of the curve in a multichannel world. An enormous wealth of data can be harvested about how your customers behave online, how often they visit, what they look 5 Real The real winners will be those who can deliver a sustainable advantage by developing new operating models, designed to handle Winners the realities of multi-channel retailing. at, how long they’re there, and what they buy, or don’t buy. The Indian Kaleidoscope: Emerging trends in Retail 29
  29. 29. The last peg in this puzzle of commerce is entertainment, conduct personal finances their phone. Nearly the same number ofthe most critical and possibly the most and much more. It is one of the most women and men use internet services onimportant one that completes the powerful mediums for one-to-one mobile phones, which is fairly surprisingdiscussion on commerce. Commerce in marketing. Opening up a new spectrum and interesting to know. This is ine-commerce is about money making its of branding and awareness, its reach is far contrast to mobile subscriber base, whichmove from the wallets of the customers to better and larger. Advancement in comprises 70% men and 30% women.the cash registers of the retailers. In the technology and boom of 3G and wireless Transaction pattern for the past sixe-tail world, conventional payment devices has added to the growth of e-tail. months from the users aged over 35 yearsmethods continue to provide strong Even advertisers have bought this story. is given below:infrastructure support for commerce to India is the top-performing mobileexist. Cash on delivery (COD) has recently advertising region in Asia. The growth in Particulars Statisticsequipped the retailer to address a large global mobile advertising expenditure Travel-related purchase 19%number of Indian customers who do not has been tremendous with a year-on-year Grocery purchase 23%use plastic money over the web. growth of 139%. More than 126 billion Household utility payments 21%We would like to focus our attention on ads were served in 2011, as compared to Entertainment and lifestylethe future of how commerce would be 52 billion in 2010. These numbers 28% – books, music and moviesdone by 800 million subscribers in India. represent the scope of opportunity not India’s population on mobileThis opportunity is being debated by only for marketing specialists but also the viewing and booking travel 14%analysts, bankers and the masses in view untapped potential for mobile through their handsetsof the changing form of money. transactions. In fact some brands have Source:The BuzzCity report been successful in doing so with theirMobile commerce is the new avatar of advanced applications and provene-commerce, bringing a revolutionary With Flipkart, homeshop18 and new credibility.change in the retail space. A growing entrants like Jabong, m-commerce hascountry like India, which has over 800 As per a report by Buzzcity, it will be a achieved success in India as well. Travel ismillion mobile subscribers, provides huge great surprise to know that 35% of mobile one of the fastest growing segments inopportunity to retailers. Tapping this subscribers are not even aware about the m-commerce. People tend to buy ticketsmedium will change the way we do basic mobile transactions available on and source hotel accommodation throughbusiness transactions, access their mobile phones. About 14% of India’s population views and books travel tickets through their handsets.30 PwC
  30. 30. FlipkartPioneering India’s online commerce market Sector snapshot • Convenience, speed and 24-hour accessibility in purchasing products is Online retail is nascent in India and will being valued increasingly. over time, evolve and more closely… PwC’s thought leadership report Strong Company profile and Steady – 2011 Outlook for the Retail and Consumer Products Sector in Asia Flipkart: Offering new categories, predicts online commerce to be the next reaching more customers, major area for retail growth in Asia. expanding operations Though nascent, India’s online retail India’s E-commerce market is growing market is growing at double-digit rates at 20 to 30% CAGR and… and is likely to be the next format that Flipkart offers a range of goods online, retailers will incorporate into their array including books, music, consumer of channels. electronics, etc. Several factors are Growth drivers include the following: driving the growth of India’s online retail • Internet penetration, the use of market, including internet penetration, broadband, etc. are making it easy the convenience of purchasing products (and quick!) for consumers to shop online, etc. Senior management at online at home, at the office, etc. Flipkart believes that consumer • Global and local E-commerce behaviour is changing and in a few years, participants have launched websites “Everyone will be buying everything that offer Indian consumers a range online, just like they buy only their tickets of products (apparel, baby products, online today.” As the market evolves, so electronics, etc.). will the consumer. • The market has seen the emergence …resemble E-commerce markets in of a range of buying mature retail environments. • propositions, such as group buying Since 2007, PwC has been conducting sites, direct sales sites, etc. surveys on online shopping, in the UK, • Consumers are more willing to examining new and emerging retail experiment with new forms of retail developments in the digital space. Since purchase and feel confident to search then, the value of online retail has for and buy goods online. The Indian Kaleidoscope: Emerging trends in Retail 31
  31. 31. increased to almost eight percent of the …online retail players have aggressive Social Mediatotal retail market, with growth growth plans. As part of its efforts to enhance theexpectations of 10% per year. Interviews By 2013-14, Flipkart plans to: customer experience, Flipkart manageswith more than 1,000 consumers in the • Offer new categories on its website its social media presence carefully. A partlast quarter of 2010 revealed that we are of Flipkart’s customer support teamwitnessing a new pattern in consumer • Increase its footprint of warehouses manages the company’s presence onbehaviour. When PwC began this series • Expand operations into new cities Facebook and Twitter. Only five or six ofin 2007, only 63% of the people we spoke • Increase staff size from 2000 to over the 200 tweets each day are negative. Theto were actually using the internet 10,000 group’s SLA for responding to negativeregularly to shop. In 2010, things had • Grow revenues 10 to 30 times over feedback on social media sites is one hourchanged. but on an average, customers areNearly 20% of respondents were Customer service will be a critical responded to within 15 minutes.spending more than half their disposable success factor for online retailers.income online. Customer service is important for online Customer insights• Fourteen percent were buying on the customers since it builds trust and web every week. comfort. When online customers have a Indian consumers are positive experience with Flipkart’s generally perceived as• Fourteen percent were doing it more price-driven and value- often—a figure that wasfour percent customer service, they convey this to their friends (word-of-mouth). conscious. While that may only two years ago be true, senior Customer service and satisfaction management at Flipkart Flipkart maintains customer service believes that their online teams to manage customer queries, track consumer is driven by both the movement of goods ordered, ensure price as well as a minimum timely delivery, etc. Providing good level of quality (in terms of customer service enables Flipkart to enjoy the end-to-end experience). high levels of customer satisfaction, As the economy grows, generate repeat business and ensure incomes rise and positive word-of-mouth. aspirations increase, the More than once a week Senior management believes that as the Indian consumer will Once a week retail sector evolves, customer satisfaction evolve into a more quality-Source: Pick ‘n’ Mix - Meeting the Demands ofthe New Multi-channel Shopper, PwC will be a key driver of success for most conscious consumer. brands and organisations.32 PwC
  32. 32. The high price 03 The growth in organised retail faces or no taxes. Consumer familiarity that unprecedented challenges, both on the runs from generation to generation and regulatory front as well as at the easy access are big advantages for the operational level. In the below section we traditional retailing sector. Most modern try to look at the operational, tax and retailers find it hard to replicate this level regulatory issues and challenges. of intimacy. Traditional retailers have also risen to the Operational issues & competition from organised retailers. The challenges adoption of IT systems, surveillance systems, tracking the customer database, ‘Don’t make customers happy, make loyalty management, SMS marketing, happy customers’. To ensure this ‘content’ credit purchase, and free home delivery experience, retailers have to incessantly have helped unorganised players retain work on the operational aspects of the customers. business. In our next chapter we talk about some of these issues that must be Infrastructure, supply chain and oiled to make sure the customer has a logistics network ‘delightful’ experience. Availability of the right merchandise at the right place, in the right condition, Fragmented market with within the right timeframe and at a unorganised players minimum cost is the primary objective of The Indian retail market is dominated by retail supply chain management. Goods unorganised retailers (mom-and-pop or in store but not on shelves could mean kirana stores). The organised retail loss of sales and an undesirable customer penetration stands at 5% and is growing experience. It is also important to vary at a CAGR of 15 to 20%. the assortment and merchandise form Organised retailers continue to face stiff one store to another, even in a single competition from the unorganised sector. state, to cater to market sensitivities. The latter have a low cost structure, are Investments in specialised supply chain mostly owner-operated, with negligible management (SCM) IT solutions help real estate and labour costs and pay little The Indian Kaleidoscope: Emerging trends in Retail 33
  33. 33. retailers manage the store as well as Retail fraudswarehouse replenishment and lower Retail frauds have been a concern for theinventory holding cost. Indian sector. According to the GlobalAn economy of scale for the procurement Retail Theft Barometer (GRTB) 2011of goods is also another challenge faced covering 45 nations, the shrinkage inby retailers. Few large retailers have been India stood at 2.38%, the highest in theable to consolidate requirements and world. The average global shrinkage wasenjoy economies of scale. estimated at 1.45%. The good news is thatPoor infrastructure and the availability of as per the GRTB, the retail shrinkage lossonly a few organised supply chain and for India in 2011 is less than 2010.logistics players further increases the Shrinkages as a percentage of total retail salesproblem for retailers leading to a delayedavailability of stock and huge costs.With the government investing heavily ininfrastructure, and with global logisticsgiants investing in India, we shall soonwitness the consolidation in the supplychain and logistics sector. This will helpretailers and consumers significantly. 0 1.5 2.5 0.5 2 3 1 Source: The Global Retail Theft Barometer 2011, CARE Research As per the GRTB, the key reasons for the • Vendor frauds retail shrinkage or pilferage in India Retailers have started investing in loss include the following: prevention and security measures such as • Shoplifting (accounting for more CCTV, surveillance cameras, RFID, etc. than 50% of total shrinkage value) This will help them in scaling down the • Internal administrative errors shrinkages but the investment in these areas is still at a nascent stage. • Employee theft34 PwC