RETAILING IN INDIA –EMERGING OPPORTUNITIES AND CHALLENGES
AUTHOR’S NAME: PRASHANTHI.B e-mail: [email protected]
(Aurora’s Business SchoolPunjagutta, Hyderabad.)
ABSTRACT:
1
This paper provides detailed information about the growth of retailing industry in India. It
examines the growing awareness among people across different socio-economic classes in India
and how the urban and semi-urban retail markets are witnessing significant growth. In India the
vast middle class and its almost untapped retail industry are the key attractive forces for global
retail giants wanting to enter into newer markets, which in turn will help the India retail industry
to grow faster. The paper includes growth of retail sector in India, current trends in retailing, key
challenges faced by Indian retail industry, strength and opportunities of retail stores, retail format
in India, recent trends, and opportunities and challenges. This paper concludes with the likely
impact of the entry of global players into the Indian retailing industry. It also highlights the
challenges faced by the industry in near future.
INTRODUCTION:
The India Retail Industry is the largest among all the industries, accounting for over 10 per cent
of the country’s GDP and around 8 per cent of the employment. The Retail Industry in India has
come forth as one of the most dynamic and fast paced industries with several players entering the
market. But all of them have not yet tasted success because of the heavy initial investments that
are required to break even with other companies and compete with them. Retailing, one of the
largest sectors in the global economy, is going through a transition phase not only in India but
the world over.
Indian Retail industry, the industry which stands second in terms of employment generation after
agriculture is undoubtedly characterized by the widely dispersed retail outlets situated at each
nook and corner whether its urban India or rural. It is the industry which is unlikely known for its
unorganized formats. In India the vast middle class and its almost untapped retail industry are the
key attractive forces for global retail giants wanting to enter into newer markets, which in turn
will help the India Retail Industry to grow faster. Indian retail is expected to grow 25 per cent
annually.
For a long time, the corner grocery store was the only choice available to the consumer,
especially in the urban areas. This is slowly giving way to international formats of retailing.
Most of the organized retailing in India had recently started and was mainly concentrated in
metropolitan cities. Within a short span of five years retail sector in India has witnessed great
2
changes mainly on account of a gradual increase in the disposable incomes of the middle and
upper-middle class households. The India Retail Industry is gradually inching its way towards
becoming the next boom industry.
The total concept and idea of shopping has undergone an attention drawing change in terms of
format and consumer buying behavior, ushering in a revolution in shopping in India. Modern
retailing has entered into the Retail market in India as is observed in the form of bustling
shopping centers, multi-storied malls and the huge complexes that offer shopping, entertainment
and food all under one roof.
According to an estimate the unorganized retail sector has 97% presence whereas the organized
accounts for merely 3%. It is expected that by 2016 modern retail industry in India will be worth
US$ 175- 200 billion.
GROWTH OF RETAIL SECTOR IN INDIA
Retail and real estate are the two booming sectors of India in the present times. And if industry
experts are to be believed, the prospects of both the sectors are mutually dependent on each
other. Retail, one of India’s largest industries, has presently emerged as one of the most dynamic
and fast paced industries of our times with several players entering the market.
As the contemporary retail sector in India is reflected in sprawling shopping centers, multiplex-
malls and huge complexes offer shopping, entertainment and food all under one roof, the concept
of shopping has altered in terms of format and consumer buying behavior, ushering in a
revolution in shopping in India. The trends that are driving the growth of the retail sector in India
are
Low share of organized retailing
Increase in disposable income and customer aspiration
Increase in expenditure for luxury items
The break-up of organized retailing sales into various product categories:
3
Books, Music & Gifts: 3% Mobile Handsets: 3% Clothing & Textile: 39% Food &
Grocery: 11% Consumer Durables: 9% Footwear: 9% Furniture & Furnishings: 8%
Catering Services: 7% Jewelers & Watches: 7% Others: 4%
CURRENT TRENDS IN RETAILING:
* Retailing in India is witnessing a huge revamping exercise.
* Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion.
* India is rated the fifth most attractive emerging retail market: A POTENTIAL GOLDMINE
* Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney.
* India is rated the fifth most attractive emerging retail market: a potential goldmine
* Food and apparel retailing key drivers of growth.
* Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-income households.
* Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption
* ITC is experimenting with retailing through its e-Choupal and Choupal Sagar – rural hypermarkets.
* The single most important evolution that took place along with the retailing revolution was the
rise and fall of the dotcom companies.
* A sudden concept of `non-store' shopping emerged, which threatened to take away the
potential of the store.
INDIAN RETAIL IS MOVING INTO SECOND PHASE
1) FIRST PHASE:(Create awareness)* New retailers driving awareness
4
* High degree of fragmentation* Real estate groups starting retail chains* Consumer expecting 'value for money' as core value
2) SECOND PHASE:(Meet customer expectations)* Consumer-driven* Emergence of pure retailers* Retailers getting multi-locational and multi-format* Global retailers evincing interest in India
3) THIRD PHASE:(Back end management)* Category management* Vendor partnership* Stock turns* Channel synchronization* Consumer acquisition* Customer relation's management
4) FOURTH PHASE:(Consolidation)* Aggressive rollout* Organized retail acquitting significant share* Beginning of cross-border movement* Mergers and acquisitions
KEY CHALLENGES OF INDIAN RETAIL INDUSTRY:
1) LOCATION:"Right Place, Right choice"Location is the most important ingredient for any business that relies on customers, and is typically the prime consideration in a customer’s store choice. Locations decisions are harder to change because retailers have to either make sustainable investments. When formulating decision about where to locate, the retailer must refer to the strategic plan:
* Investigate alternative trading areas.* Determine the type of desirable store location* Evaluate alternative specific store sites
2) MERCHANDISE: The primary goal of the most retailers is to sell the right kind of merchandise and nothing is more central to the strategic thrust of the retailing firm. Merchandising consists of activities involved in acquiring particular goods and services and making them available at a place, time and
5
quantity that enable the retailer to reach its goals. Merchandising is perhaps, the most important function for any retail organization, as it decides what finally goes on shelf of the store.
3) PRICING: Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing decisions is growing because today's customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change.
4) TARGET AUDIENCE:"Consumer the prime mover""Consumer Pull", however, seems to be the most important driving factor behind the sustenance of the industry. The purchasing power of the customers has increased to a great extent, with the influencing the retail industry to a great extent, a variety of other factors also seem to fuel the retailing boom.
5) SCALE OF OPERATIONS: Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India.
To become a truly flourishing industry, retailing needs to cross the hurdles:
Automatic approval is not allowed for foreign investment in retail.
Taxation, which favours small retail businesses.
Absence of developed supply chain and integrated IT management.
Lack of trained work force.
Low skill level for retailing management.
Intrinsic complexity of retailing – rapid price changes, constant threat of product
obsolescence and low margins.
OPPORTUNITIES IN INDIAN RETAILING:
Another credible factor in the prospects of the retail sector in India is the increase in the young
working population. In India, hefty pay packets, nuclear families in urban areas, along with
increasing working-women population and emerging opportunities in the services sector.
These key factors have been the growth drivers of the organized retail sector in India which
now boast of retailing almost all the preferences of life - Apparel & Accessories, Appliances,
6
Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many
more.
With this the retail sector in India is witnessing rejuvenation as traditional markets make way
for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores.
The retailing configuration in India is fast developing as shopping malls are increasingly
becoming familiar in large cities. When it comes to development of retail space specially the
malls, the Tier II cities are no longer behind in the race. If development plans till 2007 is
studied it shows the projection of 220 shopping malls, with 139 malls in metros and the
remaining 81 in the Tier II cities. The government of states like Delhi and National Capital
Region (NCR) are very upbeat about permitting the use of land for commercial development
thus increasing the availability of land for retail space; thus making NCR render to 50% of the
malls in India.
FUTURE PROSPECTS:
Reliance has drawn up an Rs 25,000-crore (Rs 250 billion) retail plan that would see its
outlets dotting 784 cities and small towns by 2010.
More recently, Sunil Bharti Mittal made news when he announced an alliance with the
world's biggest retail chain Wal-Mart, for a supply chain and cash-and-carry venture,
besides a franchise agreement for retail.
Retail icon Kishore Biyani is also stepping on the gas -- he has announced plans to roll
out 225 Big Bazaar stores and hundreds of other outlets in other formats in the next four
years.
The Tata group too earlier this year expanded its footprint (beyond the formats rolled out
by Group Company Trent of Westside fame) by entering the durables segment, in a tie-up
with Australian retailer Woolworths, with the launch of its Croma store.
Reliance Retail, for instance, has chalked out a plan to roll out about 5,500 stores of all
kinds in 800 cities, 85 logistics centers and 1,600 farm supply hubs.
7
RPG Enterprises, based in Mumbai, plans to invest 4.5 billion rupees to expand its
Spencer's chain. Spencer's features Big Bazaar-type shops, supermarkets and convenience
stores. It will raise money from a share sale and through private equity, RPG's vice
chairman, Sanjiv Goenka, said.
Reliance is gearing up to revolutionize the retailing industry in India. Towards this end, reliance
is aggressively working on introducing a pan-India network of retail outlets in multiple formats.
A world class shopping environment, state of art technology, a seamless supply chain
infrastructure, a host of unique value-added services and above all, unmatched customer
experience, is what this initiative is all about.
The retail initiative of Reliance will be without a parallel in size and spread and make India
proud. Ensuring better returns to Indian farmers and manufacturers and greater value for the
Indian consumer, both in quality and quantity, will be an integral feature of this project. By
creating value at all levels, we will actively endeavor to contribute to India's growth.
The project will boast of a seamless supply chain infrastructure, unprecedented even by world
standards. Through multiple formats and a wide range of categories, Reliance is aiming to touch
almost every Indian customer and supplier.
The investment could create up to 400,000 jobs, it believes. Elsewhere, consumer goods
group ITC has set up its "e-Choupal" scheme to try and improve the productivity of
farmers that supply its food processing operations. It has built internet kiosks in rural
villages to help give farmers access to the latest information on things like the weather,
current market prices and what foods are in demand.
"India's greatest need is to take the benefit of retailing to the doorstep of the farmer,"
CONCLUSION:
The retail sector has played a phenomenal role throughout the world in increasing productivity
of consumer goods and services. There is no denying the fact that most of the developed
8
economies are very much relying on their retail sector as a locomotive of growth. The India
Retail Industry is the largest among all the industries, accounting for over 10 per cent of the
country’s GDP and around 8 per cent of the employment. The Retail Industry in India has come
forth as one of the most dynamic and fast paced industries with several players entering the
market. But all of them have not yet tasted success because of the heavy initial investments that
are required to break even with other companies and compete with them. The India Retail
Industry is gradually inching its way towards becoming the next boom industry.
9
Recommended
