IMPACT OF CULTURAL CHANGE IN RETAILING
The word retail derived from the French word “retailler”, meaning to cut the bulk. In
other word, it implies a first hand transaction with the customer.
Retailing can be defined as the buying and selling of goods and services. It can also be
defined as the timely delivery of goods and services demanded by consumers at price that
are competitive and affordable.
For years rumors in the retail industry have predicted the imminent, complete opening of
the Indian retail sector to non-Indian operators. Since the economic liberalization
measures of 1990 were legislated, the amount of foreign direct investment (FDI) flowing
into this sector, together with many others, such as banking, insurance, and print media,
has been closely controlled by the Indian government. Partly as a result, India’s retail
sector remains highly fragmented: 97 percent of the market belongs to unorganized
outlets; just three percent to organized ones. India’s retail sector remains one of the few
large unconsolidated markets in the world.
The last few years have witnessed an sudden increase of organized retail formats like
supermarkets and hypermarkets in an otherwise fragmented Indian retail market. India is
witnessing an unparalleled consumption explosion. The economy is growing between
8 %– 9 % and the improvement in income along with factors like favourable
demographics and growths in aspiration consumption are the drivers for retail in India.
In 2005, the retail industry in India amounted to Rs. 10000 billion accounting for about
10% growth to the country’s GDP. The organized retail market in India out of this total
market accounted for Rs. 350 billion which is about 3.5% of the total revenues.
This retail market in Indian retail sector is expected to cross Rs. 1000 billion by 2010.
Traditionally the retail industry in India was largely unorganized, comprising of drug
stores, medium and small grocery stores. Most of the organized retailing in India have
started recently and concentrated on metropolitan cities only.
Organized retail in India refers to the modern retail formats like supermarkets,
hypermarkets prevalent in most developed countries. This sector remained a dormant
sector largely due to lack of infrastructure for large scale retail, absence of product
variety, and a conservative Indian consumer. Today, the flood of products in the market
coupled with more informed, interested and adaptable Indian consumers, have created the
atmosphere for entry of organized retail to tap into the $320 billion Indian retail industry.
Different forms of retailing
• Large supermarkets, typically (3,500 - 5,000 sq. ft)
• Mini supermarkets, typically (1,000 - 2,000 sq. ft)
• Convenience store, typically (7,50 - 1,000 sq. ft)
• Discount/shopping list grocer
• Traditional retailers trying to reinvent by introducing self-service formats as well as
value-added services such as credit, free home delivery etc.
The Indian retail sector can be broadly classified into –
1. Food retailers
2. Health and beauty products
3. Clothing and footwear
4. Home furnishing and household goods
5. Durable good
6. Leisure and personal goods
In a world of modern retail, India stands out as one of the last great investment
opportunities. The first investors will be attracted by the seemingly limitless
opportunities. However, the risks they face, whether they are be they political, sectoral,
physical, labor, or regulatory in nature, are equally daunting. Market entry must be
carefully planned with a steady flow of business intelligence feeding the business
CULTURAL CHANGE IN INDIA AND ITS IMPACT
Culture is that complex whole which includes knowledge, belief, art, law, morals,
customs and any other capabilities and habits acquired by humans as members of society.
Culture influences the pattern of living, of consumption, of decision- making by
individuals. Culture is acquired. It can be acquired from the family, from the region or
from all that has been around us while we were growing up and learning the ways of the
world. Culture forms a boundary within which an individual thinks and acts. When one
thinks and acts beyond these boundaries, he is adopting a cross-cultural behaviour and
there are cross-cultural influences as well. The nature of cultural influences is such that
we are seldom aware of them. One feels, behaves, and thinks like the other members of
the same culture. It is all pervasive and is present everywhere. Material culture influences
technology and how it brings cultural changes like use of telephones, mobile phones,
clothing styles and fashions, gives the marketers a chance to improve the product,
packing, etc. to meet the needs of the customers. Norms are the boundaries that culture
sets on the behaviour. Norms are derived from cultural values, which are widely told
beliefs that specify what is desirable and what is not. Most individuals obey norms
because it is natural to obey them. Culture outlines many business norms, family norms,
behaviour norms, etc. How we greet people, how close one should stand to others while
conducting business, the dress we wear and any other patterns of behaviour. Culture
keeps changing slowly over time; and is not static. Changes take place due to rapid
technologies. In case of emergency, war, or natural calamities, marketers and managers
must understand the existing culture as well as the changing culture and culture of the
country where the goods are to be marketed. Major companies have adapted themselves
to international culture and are accepted globally.
Everybody in this world is a consumer. Everyday of our life we are buying and
consuming an incredible variety of goods and services. However, we all have different
tastes, likes and dislikes and adopt different behaviour patterns while making purchase
decisions. Many factors affect how we, as individuals and as societies, live, buy, and
consume. External influences such as culture, ethnicity, and social class influence how
individual consumers buy and use products, and help explain how groups of consumers
behave. The study of culture encompasses all aspects of a society such as its religion,
knowledge, language, laws, customs, traditions, music, art, technology, work patterns,
products, etc. Culture is an extremely critical and all pervasive influence in our life.
Indian consumer has undergone a remarkable alteration. Just a decade or two ago, they
saved most of their incomes, purchased the only necessities.
But today, equipped with higher income, credit cards, exposure to new shopping culture
of west, desire to show status and to improve standard of living, the Indian consumer is
spending a lot. His new mentality, in turn is fueling the growth of organized retail in
Most of the consumers have grown up with television, the internet, and have been
exposed to the better standard of living and consumer culture abroad. This generation is
also making money at a younger stage in life due to call centre jobs and other avenues of
employment openings. As a result most of them are considering these shopping malls as
the place for their entertainment.
With the entry of MNCs in India, the people are getting better job opportunities, and the
income levels are also becoming better with different allowances. This sets the stage for a
very exciting and promising retail market in the future.
The finance section has already seen a huge expansion. Nowadays credit cards, debit
cards, short time loans have become easily accessible and have contributed to the
emergence of a consumer culture in India. Credit card reward schemes, flexible financing
options, EMI facility, loyalty cards are tempting the Indian consumer to shop.
Growing urbanization and different facilities of cities converted the local population from
net saver to net spender.
The urban population is well aware of the different shopping malls and through different
media they are well known about the offers and schemes.
Aspirations for better standard of living make the urban consumer spending more.
While consumer demand is driving retail growth, it is in turn being driven by the
following factors –
1. Economic growth
2. Improved standard of living
3. More affluence
4. Mass awareness
6. Credit availability
7. Promotional offers
8. Status symbol
These positive macro trends are resulting in changing preferences in demand for lifestyle
goods. Mind sets are shifting towards an organized retailing experience.
Some changes in our culture:
1. Convenience: as more and more women are joining the work force there is an
increasing demand for products that help lighten and relieve the daily household chores,
and make life more convenient. This is reflected in the soaring sale of Washing machines,
microwaves, Pressure cookers, Mixer grinders, food processors, frozen food etc.
2. Education: People in our society today wish to acquire relevant education and skills
that would help improve their career prospects. This is evident from the fact that so many
professional, career oriented educational centers are coming up, and still they cannot
seem to meet the demand. As a specific instance count the number of institutions offering
courses and training in computers that has opened in your city.
3. Physical appearance: Today, physical fitness, good health and smart appearance are
on premium today. Slimming centers and beauty parlours are mushrooming in all major
cities of the country. Cosmetics for both women and men are being sold in increasing
numbers. Even exclusive shops are retailing designer clothes.
4. Materialism: There is a very definite shift in the people’s cultural value from
spiritualism towards materialism. We are spending more money than ever before on
acquiring products such as air-conditioners, cars CD players etc, which adds to our
physical comfort as well as status.
POSITIVE IMPACT OF CULTURAL CHANGE
In India the retail sector is one of the largest employers after agriculture. But it is highly
fragmented and chiefly consists of small independent, owner – managed shops. New
formats like super markets and large discount and department stores have started
influencing the traditional looks of bookstores, furnishing stores and chemist shops. The
retail revolution, apart from bringing in positive changes in the quality of life in the
metros and bigger towns, is also bringing in slow changes in lifestyle in the smaller towns
of India. Increase in literacy, exposure to media, greater availability and penetration of a
variety of consumer goods into the interiors of the country, have all resulted in tapering
down the differences of spending between the consumers of larger metros and those of
smaller towns. However, the supply of quality real estate space would be instrumental in
propelling the future growth momentum of the retail sector in India. The addition of
better and affordable retail space would enable retailers to distribute more better-quality
products and services to the consumers. For the retail sector to accomplish more growth,
the increase of organized retailing has to become a countrywide phenomenon. The
growth of the organized retail industry in the country will mean thousands of new jobs,
increasing income levels and living standards, better products, and services, a better
shopping experience, and more social activities.
The retail sector in India is undergoing substantial growth and development, driven by
the impact of rising incomes, increasing urbanisation, low interest rates, greater brand
competition and a youth-driven culture. Retail sales grew by 10.5% in rupee terms in
2005, equivalent to a volume rise of 6%. Retailing is undergoing a structural shift in
India, as supply slowly moves from small, family-run shops to larger, organised retail
outlets. The rising number of attractive stores and foreign brands, coupled with readily
available credit, will support steady real growth in retail sales of 7.2% a year between
2006 and 2010.
Income growth and structural changes will fuel growth
Apart from steady income gains, consumer financing has become a major driver in the
consumer durables industry. In the case of more expensive consumer goods, such as
refrigerators, washing machines, colour televisions and personal computers, retailers are
joining forces with banks and finance companies to market their goods more
aggressively. Among department stores, other factors that will support rising sales
include a strong emphasis on retail technology, loyalty schemes, private labels and the
subletting of floor space in larger stores to smaller retailers selling a variety of products
and services, such as music and coffee.
Organised retailing will expand sharply
Organised retailing is relatively new to India, although it has begun to expand rapidly. As
with other consumer-oriented goods and services, this sector should benefit from rising
wealth, industry deregulation and a greater openness to international influences. Perhaps
only 3% of retail sales in India are accounted for by organised retailers. By 2010,
however, the organised sector could account for as much as 20% of the total retail sector,
based on current trends. At present, around 96% of the more than 5m retail premises of
all types in India are smaller than 50 sq metres. Yet this is beginning to change. Shopping
malls are becoming increasingly common in large Indian cities, and developers have
plans to add hundreds of new malls over the next three years. Although not all of these
plans will be realised—and many of the new malls will be much smaller than their
Western counterparts—Indian consumers will have a far larger number of attractive,
comfortable, brand-conscious outlets in which to shop.
Competition from the traditional retail sector will continue to be a major issue for
international firms entering the Indian market, whether directly at the wholesale level or
indirectly through local firms. Traditional shops are mostly owner-operated, have low
labour and property costs, and generally pay little or no tax. New entrants to the
organised retail sector will also face higher labour and property costs than traditional
firms and must bear the additional expense of back-up power supplies. Other
impediments include high intermediation costs, expensive—and often inadequate—
supply-chain infrastructure, inflexible labour laws, complicated property codes, multiple
licensing requirements and a shortage of skilled managerial staff.
Retailers will target affluent and well-off households
GDP per head in India was about US$730 in 2005 (at market exchange rates), but this
figure disguises wide variations across social strata and between regions. There were
nearly 13m households (6.4% of the total) with an annual income of more than US$5,000
in 2005. These households already own a wide variety of consumer goods, including cars,
and constitute India's most sought-after consumers. Apart from these relatively wealthy
Indians, 34m households (16.5% of the total) had annual incomes of US$3,000-5,000.
These "well-off" households can afford, and many already own, airconditioners, washing
machines, refrigerators, colour televisions and motor scooters. This segment, which is
increasingly brand-conscious, is the target market for the rapidly growing organised retail
sector in India.
The food and groceries sector has strong growth prospects
The greatest opportunities for retail sales growth are likely to be in the food and groceries
sector. Modern retailing—involving large shops and supermarkets—constitutes less than
1% of the total food-retailing sector. The rest is composed of traditional kiosks and small
shops. Indian food retailing is, however, moving inexorably towards the supermarket
format, and consumers in the affluent, upper-income segment are attracted to brand
names, variety and convenience. Other sectors that are likely to see growth include
consumer durables, information technology (IT), home improvement, and health and
beauty. A more sophisticated front-end retail infrastructure will also create more demand.
India's biggest retailer, Pantaloon, plans to increase its 300,000 sq metres of retail space
to 1m sq metres by end-2007, enabling it to expand its Pantaloon department stores as
well as its Big Bazaar hypermarkets and Food Bazaar supermarkets. India's biggest
private-sector company, Reliance Industries, has ambitious plans to enter the retail sector.
The company is thought to be considering investment of Rs100bn (US$2.2bn) over the
next two years to establish more than 1,500 outlets across the country employing
Increasingly, local manufacturers and wholesalers are establishing retail outlets in a bid
to ensure higher margins. This has been especially true of retailers in the IT sector, where
growth is likely to be robust. Zenith of the US, Acer India (Taiwan) and a local company,
HCL Infosystems, have all set up retail outlets across India, with more locations planned.
New product development and relatively inexpensive financing are fuelling the trend.
Existing local IT distributors and wholesalers are also expanding into the retail sector.
Foreign investment will play a bigger role in retailing
The opening of the retail sector to foreign direct investment (FDI)—a policy change that
would alter radically the face of the Indian economy—is happening slowly. Since
February 2005 the government has taken several liberalising steps, but it continues to
disallow FDI by retailers of multiple brands, keeping out the big hypermarket groups and
discounters. This is a carefully crafted decision designed to cause minimum political
damage domestically, while showing foreign investors that liberalisation remains on
track. Foreign firms will continue to lobby for liberalisation and have cited the restriction
on FDI as a factor limiting future growth. Their options should multiply as food imports
are liberalised and import duties come down. The government will also need to reform
real-estate laws and restructure tax regimes further if it is to attract international retailers.
Wal-Mart of the US will continue its high-profile campaign to open up India's retail
sector to foreign companies. Tesco of the UK and Carrefour of France are also sizing up
the Indian market. Wal-Mart argues it would use local producers not only for its Indian
operations, but also for its global network as this could increase India's exports. As
domestic companies expand into the organised retail sector, the pressure on the
government to open the sector to foreign investment is likely to increase on competition
grounds. Some domestic companies, such as Reliance Industries, are confident that their
familiarity with the numerous business operating difficulties in India would give them a
distinct competitive advantage over foreign companies.
India tops the annuallist of most attractive countries for international retail
expansion, according to AT Kearney's Global RetailDevelopment Index 2006
The $270-billion Indian retail market is growing at the rate of 13 per cent – and
the organised segment grew nearly 48 per cent in 2006 at prevailing prices
Projected growth rate for the organised segment is about 40 per cent for year
2007 – and with major global players and Indian corporate houses entering the
fray, this growth is likely to touch 45 per cent per annum over the next three
At 2003-04 constant prices, the size of the organised retail market is expected to
be in excess of Rs 200,000 crore ($45 billion) by year 2010, which will make its
contribution to total retail sales about 15 per cent. Currently, only 4.6 per cent of
the market is organised.
Food and grocery retail is by far the single largest block, estimated to be worth
Rs 743,900 crore ($168 billion) – at the moment, more than 99 per cent of this
segment is claimed by kirana stores
The significance of rural retailing as a formidable segment cannot be lost on any
player looking for organic growth. The urban-rural split in consumer spending is
9:11. Of the estimated $270-billion Indian retail market, almost half lies in rural
According to recent studies conducted by National Council of Applied
Economic Research (NCAER), rural India is home to 720 million consumers
spread across 627,000 villages
Of course, India will have to arrive at its unique formats of retailing in order to
tap the market optimally, but successful global models and time-tested practices
can be studied to assimilate and adapt indigenously
An FDI Confidence Index survey done by AT Kearney, retail industry is one of
the most attractive sectors for FDI (foreign direct investment) in India and
foreign retail chains would make an impact circa 2003.
Greater availability of quality retail space with increase in organised retail
An estimated 100 million square feet of quality shopping centre space by
2007-08; to generate retail sales of over Rs 50,000 crore ($11 billion)
Concurrent with the growth in organised retail, the present two square feet-per-
capita retailing space will rise 15-20 per cent by 2010
By 2010 about 300 million square feet of additional retail space likely to
Mall development has been steady – currently, there are about 200 operational
malls (including some on the verge of completion), and this number is expected
to rise to almost 600 by the year 2010. Of the new malls coming up, 40 per cent
are concentrated in the smaller cities
According to an ICICI study, malls are estimated to become a Rs 38,447-crore
($8.3 billion) sector by 2010
Space for 15,000+ new outlets, 100 hypermarkets, 500 department stores and
Organised retailing in small-town India is growing at 50-60 per cent a year,
compared to 35-40 per cent in the large cities
NEGATIVE AFFECT OF CULTURE
India's consuming class
Estimated households by
Structure of the Indian consumer market (1995-96)
Annual Number of households
Annual income No. of income (in million)
(in Rupees) at households (in Rupees) Classification
1994-95 prices (in million) at 1994-95 Urban Rural Total
<25,000 80.7 <16,000 Destitutes 5.3 27.7 33.0
25,001-50,000 50.4 Aspirants 7.1 36.9 44.0
50,001-77,000 19.7 Climbers 16.8 37.3 54.1
77,001-106,000 8.2 Consumers 16.6 15.9 32.5
>106,000 5.8 >215,000 The rich 0.8 0.4 1.2
Total no. of households: 164.9
Total no. of households 46.6 118.2 164.8
Source: National Council of Applied Economic Research (NCAER). The above
presentation has been slightly modified by IndiaOneStop.Com
• Data on income distribution of households is insufficient in determining market
size for different consumer products in India. This is because of the lack of
homogeneity of the consuming class and the varying prices of a single product in
different parts of India. For example, vegetables generally cost more in Mumbai
than in Calcutta, hence vegetable-purchasing power for identical income groups
would be different in the two places even though they are the two biggest cities in
India with comparable populations. In other words, purchasing power is location-
specific, not income specific. Consumption habits of households are therefore
better determinants of consumer market size than income distribution. Of course,
other factors are also to be considered and they are detailed below.
• While determining market size for a consumer product, the structure of the
consuming class as seen in Table II above, can be both revealing as well as
misleading depending on the kind of product. For example, any specific
consuming class would be fit to be a market for consumer products like tea or
soap, but a product such as vacuum cleaners would find market largely only in the
"consumers" and "rich" segments of the market as defined in Table II above.
Furthermore, even this may not be correct, because a taste for a vacuum cleaner is
not necessarily a function of purchasing power but of culture and/or taste as well.
• Identifying a plausible market size for a consumer product is therefore a
hazardous task in a heterogeneous country like India. Yet, the marketer needs
some data to come as close to the real picture as possible. For this purpose, it can
be cautiously assumed that purchasing power is proportional to income despite
variables such as location, taste etc. Companies are therefore advised to plan their
consumer product marketing strategies on an area-by-area basis, rather than on an
• Income data is insufficient. Therefore, it must be supplemented by product-
specific information regarding its existing stock in the marketplace (in the case of
consumer durables) and existing rate of purchases.
• It is also advisable to further refine the plausible market size by taking into
account details based on social, cultural and demographic factors.
• Marketing a super-premium product such as a Rolex watch is relatively easy. Just
go for the income class above Rs. 106,000 per annum (in 1995-96) as per Table I
above. This class, Table I shows, comprises 5.8 million households. But the
problem lies in the fact that the 5.8 million households are spread all over India.
• The prime market for consumer products in India is aware of the cost-benefit, or
value for money, aspect. Their convept of value incorporates socio-cultural
benefits in addition to product utility. For example, many households in the
"consumers" class and the "rich" class (as defined Table II) may have two
television sets, but both the sets may not be top-of-the-line. Thus, while they may
be demand for an additional TV set in many households in the two mentioned
classes, it must not be mistaken as demand for the higher priced TV models. The
prime consumer market in India therefore is not a market for absolute premium
products, but for something between the "high end popular brands" to the
• The class described in the previous paragraph is actually the "consumers" class
defined in Table II. This class comprises 33.5 million households as at 1995-96
and it owned and 'consumed' most of the expensive consumer products such as
refrigerators and washing machines as well as premium expendables. At 1994-95
prices, their annual household incomes ranged between Rs. 45,000 and Rs.
215,000 (to calculate the latest income statistics, use an annual inflator of 5 per
cent). In addition to this class, the "climbers" and "aspirant" classes (defined in
the Table II) totaling 23.9 million households in urban India, also have the socio-
cultural traits of the "consumers" class and, with time, will join the consumers
class. Medium-to-long-term marketing strategy must therefore aim at the aspirants
and the climbers as well. This is based on the safe assumption that, except for the
destitute class as defined in Table II, the other classes are on the way to the next
higher class. For companies with long-term marketing plans in India, the
"consumers" (urban + rural), "climbers" (urban only) and "aspirants" (urban only)
classes can be clubbed together to give a market size of around 57 million
households which can be said to be the "prime segment" of the Indian consumer
market. This becomes even more true as consumer financing and the credit card
culture picks up. Fine-tuning between the classes is of course important, as
explained in the next paragraph.
• All of the above may be confusing, but the marketing strategist has to live with it
because that's how the Indian consumer market is in reality. There is hardly a
characteristic that applies across the market. Hence, the term "Indian consumer
market" is a misnomer: it would be more accurate to describe it as a collection of
different consumer markets.
• Even though India has well over 5 million retail outlets of all sizes and styles (or
non-styles), the country sorely lacks anything that can resemble a retailing
industry in the modern sense of the term. This presents international retailing
specialists with a great opportunity.
• Retailing in India is thoroughly unorganised. There is no supply chain
management perspective. According to a survey b y AT Kearney, an
overwhelming proportion of the Rs. 400,000 crore retail market is
UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is
• As much as 96 per cent of the 5 million-plus outlets are smaller than 500 square
feet in area. This means that India per capita retailing space is about 2 square
feet (compared to 16 square feet in the United States). India's per capita retailing
space is thus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the
India operation of the US-based Kurt Salmon Associates).
• Just over 8 per cent of India's population is engaged in retailing (compared to 20
per cent in the United States). There is no data on this sector's contribution to the
• From a size of only Rs.20,000 crore, the ORGANISED retail industry will grow
to Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated
above will grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs.
800,000 crore by 2005 (source: survey by AT Kearney)
• Given the size, and the geographical, cultural and socio-economic diversity of
India, there is no role model for Indian suppliers and retailers to adapt or expand
in the Indian context.
• The first challenge facing the organised retail industry in India is: competition
from the unorganised sector. Traditional retailing has established in India for
some centuries. It is a low cost structure, mostly owner-operated, has negligible
real estate and labour costs and little or no taxes to pay. Consumer familiarity
that runs from generation to generation is one big advantage for the traditional
• In contrast, players in the organised sector have big expenses to meet, and yet
have to keep prices low enough to be able to compete with the traditional sector.
High costs for the organised sector arises from: higher labour costs, social
security to employees, high quality real estate, much bigger premises, comfort
facilities such as air-conditioning, back-up power supply, taxes etc. Organised
retailing also has to cope with the middle class psychology that the bigger and
brighter a sales outlet is, the more expensive it will be.
• The above should not be seen as a gloomy foreboding from global retail
operators. International retail majors such as Benetton, Dairy Farm and Levis
have already entered the market. Lifestyles in India are changing and the
concept of "value for money" is picking up.
• India's first true shopping mall – complete with food courts, recreation facilities
and large car parking space – was inaugurated as lately as in 1999 in Mumbai.
(this mall is called "Crossroads").
• Local companies and local-foreign joint ventures are expected to more
advantageously positioned than the purely foreign ones in the fledgling
organised India's retailing industry.
• These drawbacks present opportunity to international and/or professionally
managed Indian corporations to pioneer a modern retailing industry in India and
benefit from it.
• The prospects are very encouraging. The first steps towards sophisticated
retailing are being taken, and "Crossroads" is the best example of this
awakening. More such malls have been planned in the other big cities of India.
The future is not so smooth for the retail industry. A number of important issues need to
be addressed suitably to foster the further growth of the retail sector. These are
summarized as follows-
1. Security of these malls need to be strengthen as any given point of time thousands of
people are present at these malls.
2. An overall change is to be bringing in the mind set of the retailers. They must find out
the way to satisfy the consumers.
Retailers need to study the consumer behavior more cautiously and relate their efforts
according to that.
One of the leading threats to retailers, of both Indian and mixed capital, is shrinkage. In
more mature markets, shrinkage typically ranges from 1-2% of Cost of Goods Sold
(COGS). In India, the metric is estimated to be much higher. Supply chains are not at the
mercy of the inherent weaknesses of India’s infrastructure and distribution networks.
They are also vulnerable to the officials who oversee infrastructure operations and to any
other individual with whom goods come into contact. An example of this is the practice
of transport companies that are hired because they have family links to the key official
who controls the state border crossings. Kroll investigated one company who used this
tactic to dramatically reduce the transit time from the south of India to Delhi – from three
days to one and a half. Other sources of shrinkage include: short-weighing, pilferage,
insecure vehicles, and poor product handling, all producing losses to be covered by the
Tracing shrinkage is an enormous challenge. Given that most transactions are still
handled on paper-based systems, the audit trail for the movement of goods is often
impossible to follow. Large retailers reveal that they have not been able to achieve any
more success than their smaller competitors when it comes to combating shrinkage.
An important source of shrinkage originates from within the retailer, i.e. its employees.
Amid widespread poverty, significant loyalty to a faceless corporation of apparently
limitless wealth is unlikely. Countering this demographic reality are good practices that
large retailers can employ such as background checks on all levels of staff and the
construction of a strong, identifiable and magnanimous business culture.
Despite India’s reputation for churning out high caliber professionals, there is a shortage
of managerial talent at the top of the Indian retail sector. Stories abound of unprofessional
management, even among some of the biggest names in the country, probably because
many major Indian retailers began as family businesses. Like many family run companies
around the world, the prize C-suite positions in Indian retailers are reserved for family
members and close friends. The absence of meritocracy prevents the hiring of
experienced managers or the promotion of able mid-managers. The lack of
professionalism, mixed with family politics leads to under-performance and unsupervised
fraud and waste. One un-named Indian retailer revealed that they had not measured stock
in several years.
As with every other Indian sector, any new retailer must navigate the maze of regulatory
interference. Regulations require upwards of 30 license approvals, and any license
approval in India is subject to abuse. At the political level, local strong-arm parties
frequently demand employment for members. Large retailers entering the market would
be perceived as a significant threat to the traditional way of life in some areas. This,
combined with populist, aggressive political leaders and strong unionization, could
provoke physical risks to high profile investors and managers.