Executive summary


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Executive summary

  1. 1. Executive SummaryRetailing is emerging as a sunrise industry in India and is presently the largest employerafter agriculture. In the year 2004, the size of Indian organized retail industry was Rs28,000 Crore, which was only 3% of the total retailing market. Retailing in its present formstarted in the latter half of 20thCentury in USA and Europe and today constitutes 20% of USGDP. It is the 3rd largest employer segment in USA. Organized retailing in India is projectedto grow at the rate of 25%-30% p.a. and is estimated to reach an astounding Rs 1,00,000Crore by 2010. The contribution of organized retail is expected to rise from 3% to 9% bythe end of the decade. The projection for the current year ie 2005 is Rs 35,000 Crore. InIndia it has been found out that the top 6 cities contribute for 66% of total organizedretailing. With the metros already been exploited, the focus has now been shifted towardsthe tier-II cities**. The retail boom, 85% of which has so far been concentrated in themetros is beginning to percolate down to these smaller cities and towns. The contribution ofthese tier-II cities to total organized retailing sales is expected to grow to 20-25%. In theyear 2004, Rs 28,000 Crore organized retail industry had Clothing, Textiles & fashionaccessories as the highest contributor (39%), where as health & beauty had a contributionof 2%. Food & Grocery contributed to 18% whereas Pharma had a contribution of 2%.** Tier-II cities: Surat, Lucknow, Dehradun, Vijaywada, Bhopal, Indore, Bhubasehwar, Varanasi to name a few.IntroductionRetailing includes all activities involved in selling goods or services directly to finalconsumers for personal, non-business use. A retailer or retail store is any businessenterprise whose sales volume comes primarily from retailing.Any organization selling to final consumers – whether a manufacturer, wholesaler orretailer- is doing retailing. It does not matter how the goods or services are sold (by person,mail, telephone, vending machine or internet) or where they are sold (in store, on thestreet, or in consumers home).There are 3 types of retailers:1. Store retailer2. Non Store retailer3. Retail OrganizationFrom the assortment point of view, Store retailers* are of 5 types:1. Specialty Store2. Departmental Store3. Super market4. Convenience Store5. Discount Store* = Definition of the store retailer types is provided in the glossary.From customers service point of view:
  2. 2. 1. Self-service retailing: Many customers are willing to carry out their own locate-compare-select process to save money.2. Self-selection retailing : Customers find their own goods, although they can ask forassistance.3. Limited service retailing: These retailers carry more shopping goods, and customersneed more information and assistance. The stores also offers services such as credit &merchandise-return privileges.4. Full service retailing: Salespeople are ready to assist in every phase of the locate-compare-select process.Although majority of goods & services is sold through stores, non-store retailing has beengrowing much faster than store retailing.Major non-store retailer types:1. Direct Selling: It deals with door-to-door or at home sale parties i.e. it involves one-to-one or one-to-many selling.Example > Eureka Forbes, Amway, Mary Kay Cosmetics.2. Automatic Vending: Example > ATM3. Buying services: Is a store less retailer serving a specific clientele-usually employees oflarge organizations-who are entitled to buy from a list of retailers who have agreed to givethem discounts in return for membership.Example > Amazon.com4. Direct marketing: It involves direct response marketing. The different forms of directmarketing are: Direct mail, catalog marketing, telemarketing, television direct responsemarketing and electronic shopping.Example: Dell ComputersRetail Organization mainly falls into 4 major categories:1. Corporate chains: Example > Pantaloons, Westside2. Retail Co-operative: Example > Amul, Samavaika, Khadi Gram Yudog3. Consumer Co-operative: Example > Apna Bazar4. Franchise Organization: Example > Monginis, Café Coffee day.Global ScenarioRetail stores constitute 20% of US GDP & is the 3 rd largest employer segment inUSA. China on the other hand has attracted several global retailers in recent times. Retailsector employs 7% of the population in China. Major retailers like Wal-Mart & Carrefourhave already entered the Chinese market. In the year 2003, Wal-Mart & Carrefour had salesof US $ 70.4 Crore & US $ 160 Crore respectively.The global retail industry has traveled a long way from a small beginning to an industrywhere the world wide retail sales is valued at $ 7 x 10 5 Crore. The top 200 retailers aloneaccounts for 30 % of the worldwide demand. Retail turnover in the EU is approximately
  3. 3. Euros 2,00,000 Crore and the sector average growth is showing an upward pattern. TheAsian economies (excluding Japan) are expected to grow at 6% consistently till 2005-06.On the global Retail stage, little has remained same over the last decade. One of the fewsimilarities with today is that Wal-Mart was ranked the top retailer in the world then & it stillholds that distinction. Other than Wal-Marts dominance, theres a little about todaysenvironment that looks like the mid-1990s. The global economy has changed, consumerdemand has shifted & retailers operating systems today are infused with far moretechnology than was the case six years ago.Given below a list of Worlds top 15 retailers: DT Rank Country of Company name Formats 2003 retail 04 Origin sales (US $ Crore) 1 US Wal-Mart Discount, Hypermarket, 25,632.9 Supermarket, Superstore, Warehouse 2 France Carrefour Discount, Hypermarket, 7,979.6 Supermarket, Specialty, Convenience, Cash & Carry 3 US Home Depot DIY 6,481.6 4 Germany Metro Hypermarket, 6,050.3 Superstore, Specialty, Convenience, Cash & Carry, Departmental, DIY, Food Service 5 US Kroger Discount, Convenience, 5,379.1 Supermarket, Super center, Warehouse, Specialty 6 UK Tesco Department, 5,153.5 Hypermarket, Supermarket, Superstore, Convenience 7 US Target Department, Discount, 4,678.1 Super center 8 Netherlands Ahold Discount, Hypermarket, 4,458.4 Supermarket, Specialty, Convenience, Cash & Carry, Drug 9 US Costco Warehouse 4,169.3 10 Germany Aldi Einkauf Discount, Supermarket 4,006.0 e 11 Germany Rewe Hypermarket, 3,893.1e Superstore, Super market, Specialty, Convenience, Cash & Carry, Departmental, DIY, Food Service, Discount, Drug 12 France Intermarche Superstore, Super 3,747.2e market, Specialty, Convenience, Cash & Carry, DIY, Food Service, Discount 13 US Sears Department, mail order, 3,637.2 Specialty 14 US Safeway, Inc. Supermarket 3,555.3 15 US Albertsons Convenience, Drug, 3,543.6 Supermarket e= estimate.
  4. 4. Indian ScenarioRetailing in India is the largest employer after agriculture. It employs almost 7% of the totalwork force in India and has a contribution of 14% to the national GDP. In the year 2004 ,the size of Indian organized retail industry was Rs 28000 Crore, which was only 3% of thetotal retailing market. Organized retailing is projected to grow at the rate of 25%-30% p.a.and is estimated to reach an astounding Rs 1,00,000 Crore by 2010. The contribution oforganized retail is expected to rise from 3% to 9% by the end of the decade. The projectionfor the year 2005 is Rs 35000 Crore.Though with a population of a billion and a middle class of 300 million (upper middle class=40, Middle class =150 & lower middle class = 110), organized retailing is still at its infancyin India. The great Indian middle class is estimated to grow to over 60 Crore by 2010making India one of the largest consumer markets of the world. It is projected that by theyear 2010, 65% of the Indian population will be in the age group of 10-49 years, whichmakes the scenario even more attractive. India has the largest retail network with 1.2Crore outlets but only 4% of them are larger than 500 sq. feet in size. USA on the otherhand has 9 Lakh outlets catering to more than 13 times the total retail market size of India.Thus India has the highest number of outlets per capita in the world with a widely spreadretail network but with the lowest per capita retail space (@ 2 sq.ft. per person). ATKearney has ranked India as the 2nd most attractive retail market after Russia, in itsGlobal Retail Development Index 2004 report.Retailing, one of the largest sectors in the global economy, is going through a transitionphase in India. For a long time, the corner grocery store was the only choice available to theconsumer, especially in the urban areas. This is slowly giving way to international formats ofretailing.Let us look at the evolution process:Detailing reasons why Indian organized retail is at the brink of revolution, the IMAGES-KSAreport says that the last few years have seen rapid transformation in many areas and thesetting of scalable and profitable retail models across categories. Indian consumers arerapidly evolving and accepting modern formats overwhelmingly. Retail Space is no more a
  5. 5. constraint for growth. India is on the radar of Global Retailers and suppliers / brandsworldwide are willing to partner with retailers here. Further, large Indian corporate groupslike Tata, Reliance, Raheja, ITC, Bombay Dyeing, Murugappa & Piramal Groups etc and alsoforeign investors and private equity players are firming up plans to identify investmentopportunities in the Indian retail sector. The quantum of investments is likely to skyrocketas the inherent attractiveness of the segment lures more and more investors to earn largeprofits. Investments into the sector are estimated at INR 2000 - 2500 Crore in the next 2-3 years, and over INR 20,000 Crore by end of 2010.Few of Indias top retailers are:1. Big Bazaar-Pantaloons: Big Bazaar, a division of Pantaloon Retail (India) Ltd is alreadyIndias biggest retailer. In the year 2003-04, it had revenue of Rs 658.31 crores & by 2010;it is targeting revenue of Rs 8,800 Crore.2. Food World : Food World in India is an alliance between the RPG group in India withDairy Farm International of the Jardine Matheson Group.3. Trinethra : It is a supermarket chain that has predominant presence in the southernstate of Andhra Pradesh. Their turnover was Rs 78.8 Crore for the year 2002-03.4. Apna Bazaar : It is a Rs 140-crore consumer co-operative society with a customer baseof over 12 lakh, plans to cater to an upwardly mobile urban population.5. Margin Free : It is a Kerala based discount store, which is uniformly spread across 240Margin Free franchisees in Kerala, Tamil Nadu and Karnataka.Wholesale trading is another area, which has potential for rapid growth. Germangiant Metro AG and South African Shoprite Holdings have already made headway in thissegment by setting up stores selling merchandise on a wholesale basis in Bangalore andMumbai respectively. These new-format cash-and-carry stores attract large volumes from asizeable number of retailers who do not have to maintain relationships with multiplesuppliers for all their needs.SWOT AnalysisA SWOT analysis of the Indian organized retail industry is presented below:Strength:1. Retailing is a " technology-intensive" industry. It is technology that will help theorganized retailers to score over the unorganized retailers. Successful organized retailerstoday work closely with their vendors to predict consumer demand, shorten lead times,reduce inventory holding and ultimately save cost. Example: Wal-Mart pioneered theconcept of building competitive advantage through distribution & informationsystems in the retailing industry. They introduced two innovative logistics techniques –cross-docking and EDI (electronic data interchange).2. On an average a super market stocks up to 5000 SKUs against a few hundreds stockedwith an average unorganized retailer.Weakness
  6. 6. 1. Less Conversion level : Despite high footfalls, the conversion ratio has been very lowin the retail outlets in a mall as compared to the standalone counter parts. It is seen thatactual conversions of footfall into sales for a mall outlet is approximately 20-25%. On theother hand, a high street store of retail chain has an average conversion of about 50-60%.As a result, a stand-alone store has a ROI (return on investment) of 25-30%; in contrastthe retail majors are experiencing a ROI of 8-10%.2. Customer Loyalty: Retail chains are yet to settle down with the proper merchandisemix for the mall outlets. Since the stand-alone outlets were established long time back, sothey have stabilized in terms of footfalls & merchandise mix and thus have a highercustomer loyalty base.Opportunity1. The Indian middle class is already 30 Crore & is projected to grow to over 60 Croreby 2010 making India one of the largest consumer markets of the world. The IMAGES-KSA projections indicate that by 2015, India will have over 55 Crore people under theage of 20 - reflecting the enormous opportunities possible in the kids and teens retailingsegment.2. Organized retail is only 3% of the total retailing market in India. It is estimated to growat the rate of 25-30% p.a. and reach INR 1,00,000 Crore by 2010.3. Percolating down : In India it has been found out that the top 6 cities contribute for66% of total organized retailing. While the metros have already been exploited, the focushas now been shifted towards the tier-II cities. The retail boom, 85% of which has so farbeen concentrated in the metros is beginning to percolate down to these smaller cities andtowns. The contribution of these tier-II cities to total organized retailing sales is expected togrow to 20-25%.4. Rural Retailing: Indias huge rural population has caught the eye of the retailers lookingfor new areas of growth. ITC launched Indias first rural mall "Chaupal Saga" offering adiverse range of products from FMCG to electronic goods to automobiles, attempting toprovide farmers a one-stop destination for all their needs." Hariyali Bazar" is started by DCMSriram group which provides farm related inputs & services. The Godrej group has launchedthe concept of agri-stores named "Adhaar" which offers agricultural products such asfertilizers & animal feed along with the required knowledge for effective use of the same tothe farmers. Pepsi on the other hand is experimenting with the farmers of Punjab forgrowing the right quality of tomato for its tomato purees & pastes.Threat1. If the unorganized retailers are put together, they are parallel to a large supermarketwith no or little overheads, high degree of flexibility in merchandise, display, prices andturnover.2. Shopping Culture: Shopping culture has not developed in India as yet. Even now mallsare just a place to hang around with family and friends and largely confined to window-shopping.Conclusion
  7. 7. To conclude, it can be said that though the global retail industry has reached its maturity,the Indian retail industry is still at its infancy. But with the huge potentiality existing in theIndian market, it is expected to grow in leaps and bounds in the near future.Instead of comparing the total global retail industry with the Indian retail industry, letscompare Wal-Mart alone with the Indian retail industry & put forward few interesting facts:1. Retail Sales of Wal-Mart for the year 2003 was US $ 25,632.9 Crore; higher than the sizeof Indian retail industry.2. The size of any Wal-Mart store is much higher than the size of any existing shopping mallin India.3. Wal-Mart has over 4,800 stores, which is unparallel to any of the Indias large formatstore.4. New stores opened annually by Wal-Mart are about 420, much higher than all organizedIndian retailers put together.5. The sales per hour of $2.2 Crore are incomparable to any retailer in the world.6. Wal-Mart has around 30,000 suppliers throughout the world and more than 600,000SKUs on its web site, a number that cannot be compared.7. Daily customers are about 1.57 Crore (almost equivalent to Mumbais entire population).8. Time between each Barbie Sale at Wal-Mart is just two seconds (same rate at whichbabies are produced in India!)Overall, it can be said that " Retail Industry" in India will emerge as one of the best 5Business sectors in this decade.GlossarySpecialty Store: Narrow product line with deep assortment, viz apparel stores, book storesetc. A clothing store would be a single line store, mens clothing store would be limited linestore & mens custom-shirt store would be a super specialty store.Example: The limited, The Body Shop.Departmental Store: Several product lines-typically clothing, household goods, homefurnishings- with each line operated as a separate department managed by specialist buyersor merchandisers.Example: Sears, Bloomingdales.Supermarkets: Relatively large, low-cost, low-margin, high volume, self-service operationdesigned to serve total needs for food, laundry & household maintenance products.Example: Kroger, Safeway.Convenience Stores: Relatively small store located near residential area, open long hours,seven days a week and carrying a limited line of high-turnover convenience products atslightly higher prices.Example: 7-Eleven, Circle K.
  8. 8. Discount Store: Standard merchandise sold at lower prices with lower margins and highervolumes. True discount stores regularly sell merchandise at lower prices and offer mostlynational brands.Example: Wal-Mart, Kmart.Off-price retailer: Merchandise bought at less than regular wholesale prices & sold at lessthan retail; often-leftover goods, overruns and irregulars obtained at reduced prices frommanufacturers or other retailers.Factory outlets are owned and operated by manufacturers and normally carry themanufacturers surplus, discontinued or irregular goods.Example: Mikasa(dinnerware), Dexter (shoes)Independent off-price retailers are owned & run by entrepreneurs or by divisions of largerretail corporations.Example: T.J.Maxx, Filenes Basement.Warehouse clubs (or wholesale clubs) sell a limited selection of brand name grocery items,appliances, clothing and other goods sold at deep discounts to members who pay an annualmembership fees. Warehouse clubs serve small businesses & group members fromgovernment agencies, nonprofit organizations and some large corporations. They operate inhuge, low-overhead, warehouse like facilities & offer few frills.They offer rock bottom prices-typically 20% to 40% below super market and discount stores prices but make no homedeliveries and accept no credit cards.Example: Sams Clubs, Max Clubs.Superstore: Averages 35,000 square feet of selling space traditionally aimed at meetingconsumers total needs for routinely purchased food and non food items. Usually offerservices such as laundry, dry cleaning, shoe repair, check cashing & bill paying.A new group called "category killers" carries a deep assortment in a particular category & aknowledgeable staff.Example: Borders books & Music, IKEA.Combination stores are a diversification of the supermarket store into the growing drug-and-prescription field. Combination food & drug stores average 55,000 square feet of sellingspace.Example: Jewel & Osco stores.Hypermarkets range between 80,000 and 220,000 square feet and combine supermarket,discount & warehouse retailing principles. Product assortment goes beyond routinelypurchased goods & includes furniture, large & small appliances, clothing items and manyother items. Bulk display & minimum handling by store personnel with discounts offered tocustomers who are willing to carry heavy appliances and furniture out of the store.Hypermarkets originated in France.Example: Carrefour and Casino (France), Pyrca, Continente and Alcampo (Spain), Meijers(Netherlands).