INDIAN ORGANIZED RETAIL INDUSTRY

1. INTRODUCTION

1.1 World History of Retail

Retail comes from the French word retaillier which refers to "cutting off, clip and divide" in terms of tailoring (1365). It first was recorded as a noun with the meaning of a "sale in small quantities" in 1433 (French). Its literal meaning for retail was to "cut off, shred, paring". When man started to cultivate and harvest the land, he would occasionally find himself with a surplus of goods. Once the needs of his family and local community were met, he would attempt to trade his goods for different goods produced elsewhere. Thus markets were formed. These early efforts to swap goods developed into more formal gatherings. When a producer who had a surplus could not find another producer with suitable products to swap, he may have allowed others to owe him goods. Thus early credit terms would have been developed. This would have led to symbolic representations of such debts in the form of valuable items (such as gemstones or beads), and eventually money.

Early Markets
Over time, producers would have seen value in deliberately over-producing in order to profit from selling these goods. Merchants would also have begun to appear. They would travel from village to village, purchasing these goods and selling them for a profit. Over time, both producers and merchants would regularly take their goods to one selling place in the centre of the community. Thus, regular markets appeared.

The First Shops

Eventually, markets would become permanent fixtures i.e. shops. These shops along with the logistics required to get the goods to them were, the start of the Retail Trade.

1.2 How Retail Develops

Peddlers and Producers
The Retail Trade is rooted in two groups, the peddlers and producers. Peddlers tended to be opportunistic in their choice of stock and customer. They would purchase any goods that they thought they could sell for a profit. Producers were interested in selling goods that they had produced.

General Store
This division continues to this day with some shops specializing in specific areas, reflecting their origins as outlets for producers (such as Pacific Concord of Hong Kong), and others providing a broad mix, known as General Store (such as Casey's in the Midwest of the U.S.A.). Although specialist shops are still with us, over time, the general store has increasingly taken on specialist products. Customers have found this to be more convenient than having to visit many shops - thus the term Convenience Store has also been applied to these shops. As the popularity of general stores has grown, so has their size. This combined with the advent of SelfService has lead to the Supermarket, or Superstore.

How did retail develop?

When individuals or groups left their community and settled elsewhere, some missed foodstuffs and other goods that were only available in their birthplace. They arranged for some of these goods to be sent to them. Others in their newly adopted community enjoyed these goods and demand grew. Similarly, new settlers discovered goods in their new surroundings that they dispatched back to their birthplace, and once again, demand grew. This soon turned into a regular trade. Although such trading routes expanded mainly through the growth of traveling salesmen and then wholesalers, there were still instances where individuals purchased goods at long distance for their own use. A second reason that distance selling increased was through war. As armies marched through territories, they laid down communication lines stretching from their home base to the front. As well as garnering goods from whichever locality they found themselves in, they would have also taken advantage of the lines of communication to order goods from home.

Retail Chains
Origins of Retail Chains
It is likely that, as markets became more permanent fixtures they evolved into shops. Although advantageous in many respects, this removed the mobility that a peddler or traveling merchant may still have enjoyed. For some shopkeepers, it made sense to obtain extra stock and open up another shop, most probably operated by another family member. This would recover business from peddlers, create new business and the greater volume would allow the shopkeeper to strike a better deal with suppliers. Thus the Retail Chain would have started.

From Family Business to Formal Structure

Although retail chains would have been mostly run by families, as some chains grew, they would have needed to employ people from outside of their family. This was a limiting factor as there would have been a limit to the amount of trusted non family members available to help run the chain. Another, even more definite limiting factor was the distance the furthest shop would have been from the original shop. The greater the distance, the more time and effort would have been needed to effectively manage outpost shops and to service them with goods. There was, therefore, a natural barrier to expansion. That was the case until transport and communications became faster and more reliable. When this happened towards the end of the 19th century, chains became much bigger and more widespread. Many of these businesses became more structured and formalized, leading to the retail chains that we see today.

Self Service
Background
Up until the introduction of self-service stores, customers would simply ask the shopkeeper for their goods. The shopkeeper would price them (weighing them if necessary), pack them in a bag or other container (often supplied by the customer), tot up the bill and receive payment. There was a personal one-to-one relationship between customer and shopkeeper.

The First Self-Service Store

This all changed in 1915 when Albert Gerrard opened the Groceteria in Los Angeles, the first documented self-service store. This was soon followed a year later by the Piggly Wiggly selfservice store, founded by Clarence Saunders in Tennessee in the U.S.

Efficiency & Growth

These entrepreneurs noticed that their staff had to spend a great deal of time taking grocery orders from customers. The groceries were stacked on shelves allowing customers to walk around and browse, collecting their shopping in a basket that was supplied. The shopkeeper would only need to tot up the final bill at the end of the process and transfer the goods from the basket to the customer and receive payment. This new type of shopping was more efficient and many customers preferred it. Although personal service stores remain to this day, this new concept started a rapid growth of self-service stores in the United States. Other countries were slow to take up the idea, but there has been a steady rise in the global amount of self-service stores ever since.

Dcor
The way a retail outlet looks will usually inform customers and potential customers about the type of store and type of products it sells.

Design
A store that sells high class goods will usually have high class dcor. By contrast, a store that sells basic goods may have basic dcor. Retailers will typically want their stores to be different from their competitors. This distinction allows the store to offer a shopping "experience". A store offering distinct dcor can score points over their competitors. This dimension is important as it reduces the burden on product versus product and price versus price competition

Frequency of Redecoration
Stores that sell fashion goods will often change their dcor regularly to reflect the changing nature of their products. For some well established stores, their dcor may be synonymous with their business and their product offer. Such stores may seldom change their dcor or only change it in minor ways.

Lighting
Food stores are usually well lit. This re-enforces an impression of hygiene and honesty. It also allows customers to read labels and signs, some of which may be legally required. The lighting in clothes and some specialist goods stores may vary across the store, according to the products being lit. Such lighting may range from soft, or even dull, to bright and occasionally colored.

1.3 History of Indian Retail

The Indian Retailing sector has been largely unorganized in the post independence period, to the most part untouched by corporate business principles. It was only in 1980s when the economy started to be opened, the situation began to change. Companies like Bombay Dyeing, Raymond and Grasim from the textiles sector were the first ones from the corporate world to step into the retailing by opening their own outlets. Titan's is another successful story of a corporate creating a great retailing concept, by establishing a series of elegant watch showrooms across the country. The post liberalization era witnessed new wave of entrants in the sector with large conglomerates like Tatas, Reliance the RPG Group, Rahejas and the Piramals investing in the sector. Various other behemoths of the Indian corporate sector like the Birlas, the Hero Group and Reliance have expressed their intention of joining the Indian retail foray. When countries grow, more people buy more things. More products become available. They need more shelf space. The result: a retail revolution. That's what's happening in India today. A new generation of retail outlets is emerging, which will change the landscape of the country's cities.The revolution is fuelled by huge sums of money being poured into real estate, modern logistics, and the creation of new retail brands.

Summary
This chapter tells that what does retailing means and how did retailing started. It was started as a simple barter and take the form of transaction by money eventually. First the retailing was started as a family business and then it became business of involving other people also.Now, it is also important to understand what are the different types of retailing to understand the basic format of the retailing and how they work.

(2)-----Types of Retailing 2.1 Three basic parts of retailing

There are three major types of retailing. The first is the market, a physical location where buyers and sellers converge. Usually this is done on town squares, sidewalks or designated streets and may involve the construction of temporary structures (market stalls). The second form is shop or store trading. Some shops use counter-service, where goods are out of reach of buyers, and must be obtained from the seller. This type of retail is common for small expensive items (e.g. jewelry) and controlled items like medicine and liquor. Self-service, where goods may be handled and examined prior to purchase, has become more common since the Twentieth Century. A third form of retail is virtual retail, where products are ordered via mail, telephone or online without having been examined physically but instead in a catalogue, on television or on a website. Sometimes this kind of retailing replicates existing retail types such as online shops or virtual marketplaces such as E-Bay.

2.2 Formats of retailing Department stores

These large stores retail primarily non-food items such as apparel, footwear, accessories, cosmetics and household products. They stock multiple brands across product categories, though some of them focus on their own store label (on the lines of Marks & Spencers and St. Michael). Several local department store chains have opened shop in India in the past five years. The larger chains of department stores (Namely Reliance fresh, Pantaloons, Shoppers Stop, Westside, and Lifestyle) have presence in the metros and mini metros.

Supermarkets
A supermarket is a store which is more of a large self-service grocery store selling groceries and dairy products and household goods that are consumed regularly. These stores are often part of a chain that owns or controls (sometimes by franchise) other supermarkets located in the same or other towns; increasing the opportunities for economies of scale. These stores offer convenience of shopping by making available a large variety of products at one place. Some of the well known supermarket chain includes Food Bazaar, Nilgiris, Food World, Apna Bazaar, Trinethra etc.

Hypermarkets/Discount stores
A hypermarket is a store which combines a supermarket and a department store. The result is a retail facility which carries an enormous range of products under one roof, including full lines of fresh groceries and apparel. It is a large format store that aims at retail consolidation by being a single point contact between the brand owners and customers. They are planned, constructed, and executed in a manner that a consumer can ideally satisfy all of their routine weekly shopping needs in one trip to the hypermarket.. Big Bazaar, Spencers, Star India Bazaar are examples of hypermarket formats.

Seamless Mall
Seamless mall is a format which is relatively new in India. In this format, various brands operate their retail areas without any wall between them, providing a seamless shopping experience. This makes it possible for shoppers to compare brands with ease while they shop Central is an example of a seamless mall.

Specialty stores
Specialty stores as the name suggests are stores that specializes in a particular offering. A specialty store carries a deep assortment within a narrow line of goods. Furniture stores, florists, sporting-goods stores, and bookstores are all specialty stores. Examples of specialty stores in India would include Planet Sports, aLL, Vijay Sales, Planet M, Music world, Crossword etc.

Clothing and Accessory Store

Clothing and accessory stores sell apparel for all members of the family, as well as luggage, leather goods, lingerie, jewellery, uniforms, and bridal gowns. Clothing and accessory stores are often staffed with knowledgeable salespersons who can help in the selection of sizes, styles, and accessories

Distance Retailing
Rather than visiting a store to make a purchase, a customer may order products from a remote location. This may be done by mail, telephone, internet/email or other digital device such as interactive television and even from a refrigerator. Retailers that practice distance retailing may also have physical stores, such as Wal-Mart.

Door-to-Door Retailing
This kind of retailing is as old as retailing itself and is still very common, although less so in recent times. A door-to-door salesperson may be self-employed or employed by a company and will usually specialize in a particular product group, often household items. Although it is common for them to visit houses, they may also sell to businesses.

Party and Event Retailing

This is usually a form of franchising where the retailer invites people from the locality to a common location. The event or the party will be a mix of socializing and retailing, usually themed around the products on offer. Most commonly, the retailer will be a franchisee to a wider organization. Although party and event selling can involve a variety of goods, it is very common that cosmetics, small household goods, clothing and sex-aids are sold.

Single Independent Non-Franchised Store

A single independent store may be run an individual, but is more typically run by a family. They may be general stores, catering to a limited geographical range or may sell specialized products to a wider area.

Street Market
The tradition of selling from market stalls goes back to the early days of retailing where traders could gather in one area to sell their wares. Street markets, or open-air markets, are common around the world and are particularly popular in temperate or warm climates.

Van Retailing
This is a cross between door-to-door sales and store sales. The retailer will typically keep 1 days stock in their van and visit an area where they will service regular customers. They may occasionally visit an area that they do not usually go to in order to attract new customers. Van sales are common in rural areas and in less developed economies. There are two types of van sales. One is where the van is parked in a common area and is visited by customers; ices and snacks are often sold this way. The other type of van sales is, in effect, the same as door-to-door selling.

Warehouse Club
Warehouse club stores and super centers sell a mix of products (and services) in fixed quantities at low prices. These stores typically include an assortment of food items, often sold in bulk, along with an array of household and automotive goods, clothing, and services that may vary over time.

(3)------Current organized retail industry in India

3.1 Introduction of Organized Retail Industry in India
Retailing is the second largest industry in the US in terms of number of people employed. WalMart, the largest retailer in the world with annual sales of US$ 284 billion is also the largest employer in the US The retailing industry in the US employs more than 22 million Americans and generates more than $3 trillion in sales annually. Like the US, many developed and developing economies rely on this sector for growth. In India, the retail industry is broadly divided into the organized and unorganized sectors. The total market in 2005 stood at Rs. 10,000 billion, accounting for about 9-10% of the countrys gross domestic product (GDP). Of this total market, the organized sector accounted for $350 billion (about 3.5 % of the total) of the total revenues.1 Traditionally, the retail industry in India comprised of large, medium and small grocery stores and drug stores which could be categorized as unorganized retailing. Most of the organized retailing in India had recently started and was mainly concentrated in metropolitan cities. The retailing industry seems poised for a significant growth in the coming years owing to the presence of a vast market, growing consumer awareness about product quality and services, higher disposable income of consumers and the desire to try out new products. Against a backdrop of accelerating modern retail globalization, India retained its position as the worlds most attractive market for mass merchant and food retailers seeking overseas growth, according to management consulting firm A.T. Kearneys 2006 Global Retail Development Index (GRDI), an annual study of retail investment attractiveness among 30 emerging markets.

Composition of Organized Retail

A breakup of sales in organized retail shows lifestyle (clothing and textile, footwear, home, watches and jewellery and health and beauty, entertainment) as the largest segment accounting for 71% in value terms. This is followed by Food and Grocery accounting for 14% of the organized retail value Organized retailing constitutes just 3 percent of the Rs.930000 crore Indian retail markets. However, the scale of organized activity is not equally spread out across all sectors. The Watches sector is the most organized of all with almost 40 percent of the market being controlled by branded and organized players. The next most organized segment is that of Footwear (13%) followed by Clothing (36%). As all of these three sectors constitute core fashion, it is rightly observed, Fashion drives Indian retail. Much of the credit for having pioneered the organized retail movement in India, and in these sectors in particular goes to brands like Titan, Bata and Raymond, besides others.
1

www.retailbiz.com/retail/facts/html

10

Of all the retail sectors, the last organized one is Food and Grocery (14%), Jewellery and Watches (17%) and Health and Beauty (1%). All three sectors are huge in size: F&G is the largest of all sectors (worth Rs.615,000 crore); India is the world's biggest market for gold and jewellery though there is hardly any retailer with a national presence in this sector; Health and beauty consciousness among Indian consumers, especially the urban youth, is on the rise and consumers will readily accept any quality offering in this context, service as well as product. There exists huge potential in these and all other sectors. Break-up of consumers expenditure in organized retail

ORGANIZED RETAILING
3% 3% 10% 2% 1% 1%

Home Pharma Entertainment Health & Beauty

13% 36% 14%

Clothing & Taxtile Jewellery & Watches Food & Grocery Footwear
17%

Durables Books Music & Gifts

Source: KSA Technopack research on Booming Retail Industry-2007

Rapid growth of organized retailing is expected in the food segment. This can be attributed to the highly unorganized nature of the market currently, which thus presents an attractive potential, and the growing preference of consumers to shop at modern retail formats. Clothing is the other segment expected to show high growth potential.

11

Indias Retail Sector: Basic Facts

Indias relevant private final consumption expenditure (PFCE) is estimated to be about US$221 (28% of GDP) billion as of F2006. Note we are excluding part of PFCE such as rent, fuel & power from the relevant spending estimate. Currently, Indian retail distribution is completely fragmented with about 12 mn players operating from small shops and handcarts. Organized retail sector is currently just about 3% of the total relevant PFCE Overall PFCE is estimated to have grown at 11.6% over the last three years. Organized retail sector is estimated to be growing at 15-20%. Wholesale and retail trade sector currently contributes to about 13% of GDP an employs about 40 million people. Food and beverages account for 38% of the total retail spending.

ORGANIZED RETAIL OPPORTUNITY

For doing a business of organized retail there are two types of cost, direct and indirect. Direct cost is that what you purchase goods from merchandise and indirect cost includes Advertising & Promotion, Excise and Other Taxes, Warehousing, Freight, Man Power, Packaging & Embellishments and Other Administrative Expenses. If your indirect cost is minimum then your profit will increases. Indirect cost all companies try to rescue as much as possible. Below list is indirect cost of Ebony Company, what is their indirect cost for operating company.

12

4. Major Areas of Indian Organized Retailing

In Indian Retail Industry there are so many sectors but we have selected major sectors which are as follows Food & Grocery Footwear Apparel Consumer Durable Gems & Jewellary FMCG

13

4.1 Food & Grocery

The greatest organized retail growth opportunities by size of segment are in food and beverage. While the organized sector accounts for only 2-4 percent of the total retail market at present (although the proportion is growing fast), only around 0.5 percent of all food retailing takes place in large shops and supermarkets, according to the EIU, which forecasts that food and beverage retailing will grow at 9.2 percent over the next five years against a total GDP growth rate of around 8 percent. India is one of the worlds largest food producers, producing around one ton of food for every single inhabitant. It is the worlds biggest producer of livestock, the biggest producer of milk, and the second largest producer of fruit and vegetables. India is also one of the worlds major food and drinks markets, reflecting the large population rather than high spending levels. Estimates of the size of the market vary as the true size of the informal market is difficult to measure: the EIU estimates that combined food beverages and tobacco spending totaled US$190 billion in 2004 (compared to around US$240 billion in China, which is of similar population size); a study by the Federation of Indian Chambers of Commerce and Industry (FICCI) concluded that the food market alone was around US$70 billion in 2004, although that is most likely an underestimate. The Indian Department of Commerce forecasts that investment in the segment will exceed US$4.8 billion in the financial year ending in 2005. The EIU forecasts that spending growth will rise, from around 6 percent in 2000-2004, to around 9 percent in 2005-2009. The proportion of household spending accounted for by food is falling, from around 54 percent in 1995 to a forecast 43 percent by 2009: this pattern is in line with the trend in most emerging economies. The forecast growth in personal disposable incomes will allow food and beverage spending to rise faster than average GDP growth, while still falling marginally as a proportion of household spending. .

14

The main growth opportunity in the segment is in processed foods: Indians consume less processed and prepared food and drinks than most other nations, and only around 2 percent of Indias agricultural output is processed (although even at that low level food processing is the countrys fifth biggest industry, representing 4.3 percent of GDP). Most processed food is exported: however, rapid growth in the processed food segment of domestic consumer markets is already apparent, evidenced by the rapid expansion of branded food outlet and caf chains. Indian consumers are used to fresh produce, says a representative from a leading industry body. To get them interested in new packaged products you have to have product innovation and packaging innovation. And that has really started to happen in the last 10 years. Another consumer products manufacturer adds Indians respond to product innovation. Look at the way Caf Coffee Day marketed coffee theres nothing new about coffee, but drinking coffee in a store was new to Indians. Meat consumption is growing very slowly (at an average annual rate of less than 2 percent over the last five years), with the market for chilled and frozen meat very small. Beef is considered to be a down market product (the slaughter of cows is banned in all but two states for religious reasons). Poultry consumption is growing much faster. Fish consumption is also low compared to other emerging economies, at 4.8 kg per head, and much of Indias marine production is exported. The EIU forecasts that rising incomes will increase domestic consumption over the next five years quite significantly, to 5.8 kg per head. Dairy consumption has been virtually stagnant over the last five years, and consumption per head is below the World Health Organizations recommended minimum of 283 grams per day. Fruit and vegetables are largely consumed fresh, with only a very small proportion of output processed. The EIU forecasts that annual growth in consumption will be around 4 percent to 2009. The rise in coffee drinking is part of the transition to more branded consumption in India,

15

and is led by the growth of branded coffee caf chains such as Barista, Caf Coffee Day and Qwikys. Foreign chains are also beginning to participate in the retail market through franchise agreements. The EIU forecasts annual consumption growth of 9.5 percent during 2005-2009. Soft drink consumption is expected to grow faster, at around 12 percent a year, mainly due to increasing sales of fruit drinks and bottled waters. India is also an important market for alcoholic drinks, although beer consumption is relatively low (India has less than 0.5 percent of the per capita consumption of the UK, for example), and regionally concentrated (Maharashtra, Andrha Pradesh and Karnataka account for nearly 50 percent of the total market). The market for wine spirits and liqueurs is larger although growth is low: the segment had sales of around US$48 billion in 2003. Recent tariff reductions on foreign branded is expected to increase consumption by value.

Percentage spent on food of the total income

The size of the total Food and Grocery market was valued at about Rs 7,500 billion in 2003 and it commands the largest share of the consumer wallet. As shown in the chart below, close to 50% of consumer spending is on food and beverage, which is much higher than in the developed countries like US and Western Europe. This is because in a developing country like India, a large chunk of consumer expenditure is on basic necessities, especially food related items. Hence, food, beverages and tobacco together accounted for as much as 71% of retail sales in 2002. The remaining 29% of retail sales are non-food items. (Source: Retailing in India Euromonitor 2007 report)

16

Market Share of different formats (Independent grocers have 71.5 % of market share) There are a large variety of retailers operating in the food retailing sector. This is not surprising considering the enormous size of the market for food. The chart below gives a breakup of the various food retailing formats prevalent in India. It clearly brings out the dominance of traditional retailing, with independent grocers constituting 71.5% of the total market share (Source: Retailing in India Euromonitor 2004 report). These traditional types of retailers, who operate small single outlet businesses mainly using family labour, dominate this sector. This is because of the competitive strengths that traditional retailers possess. These include low operating costs and overheads, low margins, proximity to customers, long operating hours and additional services to customers such as home delivery. In comparison, supermarkets account for a miniscule proportion of food sales. Nevertheless, supermarket sales expanded at a much higher rate than other retailers. Growth in supermarket sales during 1999-2002 was 32% per year, compared with 6% for total retail sales of food.

Retailing in India

(source: Euromonitor, 2007 report)

This is because a greater number of higher income Indians, prefer to shop at supermarkets because of convenience, range of merchandise, higher standards of hygiene and the attractive ambience. Among the segments of organized retail, food retail is expected to develop the fastest. Going forward, it is expected that supermarkets will be the fastest growing food retailers. Their sales are expected to grow by about 40% per year during 2003-20082 The food supply chain in India is highly fragmented and is cluttered with several intermediaries, from farm-processor distributor- retailer. However, changes are underway and systems are being established for effective Business-to-Business (farmer-processor, processor-retailer) solutions thereby leveraging the core competence of each player in the supply chain. This helps to contain costs in the delivery mechanism.

Retailing in India Euromonitor 2007 report).

17

Food Retail
The Mobile Chain of Food Retail

Farmer

APMC

Wholesaler

Organized Retailer

Retailers

Hawkers

Consumers

The above graph shows how organized retailers have changed the supply chain. The mediators have been dropped down by the organized retailers they directly purchased the goods from the Farmers and APMCs and sold to the consumers which reduced the cost of the channel members.

18

Retailers look to corner unbranded food space

The message is clear. With modern food formats like Food Bazaar and Spencer's offering to take the negative labour out of positive Indian home pleasures by setting up an in-house chakki (flour mill), offering to knead the dough and cut vegetables free of charge, retailers have their eye on the unbranded 'centre of the plate' in the Indian homemaker's staple meal. Its an area where many Indian and multinational companies have failed miserably. The attempt is to seek a share of the unbranded part of the consumers shopping basket, which constitutes as much as 60% of the total purchases and growing sharply, say AC Nielsen estimates. Retailers are offering a package of convenience and freshness, and have an edge over manufacturers that focus mainly on packaged conveniences. We are looking at taking the negative labor out of such positive Indian pleasures of life. Incomes in India are going up and becoming interesting to build aspirational brands now. But the media is already fragmented and expensive, and retail is getting consolidated. With 60% of the grocery basket still unbranded, the opportunity for brand creation is huge. In the new paradigm, however, the method of brand creation will have to be different and in tune with the new reality. The retailers come with no baggage to this new opportunity and therefore, will have a mindset advantage over traditional branded guys, says Damodar Mall, president, Food Bazaar. Food retailers are offering live kitchen formats, which offer on-the-spot home-style gravies, dals, cooked rice and kneaded dough with options like grinding coffee fresh at store, idli batter, paneer, curd and cut vegetables. By cutting heavily through intermediaries with a real drastic cut in the supply chain length, retailers are reducing the shelf-life of products to less than a week. Consumers like the touch, smell and feel of commodities like grains or flour they purchase and retailers are trying to build their offerings around this need. Adapting to Indian needs is the key. Some of our formats stock vegetarian and non-vegetarian stuff. They also stock regional specialities, for instance, Gujarati, South Indian, Mangalorean or Keralite items in areas dominated by people from these regions. But these are essential investments in the long-term understanding of the Indian psyche and ensuring customer pull, which is localising each format to suit the demands and sensitivities of the Indian market. Trumart is looking to tie up with vendors to make fresh batter for the idli or dosa in-house and set up a bakery and offer fresh bread to consumers. Earlier consumers chose fresh and pure products where there was a lot of drudgery involved. They shifted to conveniences like packaged atta, but were unsatisfied with the quality and taste. Retailers are entering the space and offering them the same conveniences, but with a lot of in your eye freshness appeal. The Rs 27,258-crore Indian foods industry, which forms 44% of entire FMCG sales, is growing at 9% and has set the growth agenda for modern trade formats.

19

4.2 Foot Wear

The Indian footwear market is estimated to be over INR 10,000 crore in value terms and has grown at the rate of 810 percent over the last couple of years. Mens footwear accounts for almost half of the total market, with womens shoes constituting 40 percent and kids footwear making up for the remainder. The market is substantially brand-driven, as is evident from the fact that branded footwear constitutes more than 42 percent of the total market size One-fourths of the total footwear sales (i.e. INR 2,500 crore) happen through organised retail outlets, and this makes it the second most organised retail segment in the country, next only to watches. Credit goes to players like Bata and Liberty for having set the ball rolling.

LEADING PLAYERS (FOOTWEAR) RETAILER Bata Liberty Metro Woodland M& B Footwear Regal Shoes Loft Khadims Sree Leather PRESENT IN NO CITIES All cities 225 31 Across India All major cities 7 2 East & South of India West Bengal, Orissa, Bihar

In terms of volume, the market size of the footwear industry in the top 20 cities in the country is estimated to be 10 crore pairs per annum. For the country as a whole, the annual domestic consumption of footwear is approximately 1.1 billion pairs per annum, as per government statistics. With a population base of 1 billion, this translates to a per capita consumption of 1.1 pairs per person per annum. India is the second largest footwear manufacturer in the world, next only to China. Nearly 58 percent of the industry, which is by and large labour intensive and concentrated in the small and cottage industry sectors, remains unbranded. However, as part of its effort to play a lead role in the global trade, the Indian leather industry is now focusing on key deliverables of innovative design, state-of-the-art production technology and unfailing delivery schedules. Indias footwear exports have shown a growth of 35.2 percent over 2002-03 registering a cumulative export of US$ 608.7 million in both the Leather and non-leather segments taken together. The leather segment accounts for 89 percent of footwear exports.

20

Trend towards Casual, Cleaner, Younger Styles

Manufacturers normally update their brands every year to reflect new directions in fashion. However, during the past couple of years or so, it has become obvious that the current trend toward more casual, cleaner, younger styles represents the mainstream. This is primarily attributable to enhanced global travel coupled with increased media penetration leading to heightened awareness of international trends and lifestyles among the Indian consumers. Workplace actualization has also had a significant role to play in the rise in demand for casual apparel and footwear. Unlike in the past, this trend is not restricted to women alone as Indian men are also waking up to the need for a wider range of fashion accessories to differentiate them from their co-workers. Their buying habits are becoming more like womens, in that they care more about the apparel and accessories they choose. As footwear retailing in India has remained focused on mens shoes, there exists a whale of opportunity in the exclusive ladies and kids footwear segment with no organized retailing chain having a national presence in either of these categories. This is especially surprising as in line with global trends women are the key decision-makers for buying footwear. Of the total footwear market, ladies shoes account for almost 40 percent though the unorganized segment constitutes 80-90 percent of this market, indicating a significant marketing opportunity for organized players.

Opportunity in Ladies & Kids Segment

In recent years the market has seen entry of a host of new domestic and foreign brands like Drish, Lotto, Lotus Bawa, Now, Oakridge, Royal Elastic, Sketchers, Teenage, Teva, Timberland and Vans. Fashionable brands like Stryde and Red Tape and MNC brands like Allen Cooper, Franco Leone, Gaitonde, Gucci, Guess, Lee Cooper, are further developing the market by creating new segments. With the Indian woman becoming more brand-conscious as opposed to the past state of being product-conscious, more and more internationally renowned players are expected to enter the Indian market to fill this need-gap. Further, given Indias very young population, the market for childrens footwear is also attractive for new organized players to enter and earn supernormal profits. The London-based Carlton group became the first overseas player to enter the Indian womens footwear market when it set up its first store at the MGF Metropolitan Mall in Gurgaon recently. Levis has also announced plans to introduce its range of footwear (including ladies shoes) in the country through a tie-up with the Noida-based M&B Footwear by next year. So far, due to the lack of quality retail space at economical prices, most of the footwear retailers have steered clear of company owned and operated outlets and have instead chosen to concentrate on expansion through either leasing space or through franchising.

21

Sportswear: Top 3 International Brands See Good Potential The entry of specialty sportswear retailers such as Royal Sporting House, Sports Station and Planet Sports providing the best shopping experience for customers and a platform to showcase the worlds top sports and active lifestyle brands has transformed the organized retailing scenario in the country. Royal Sporting House has over 40 stores in India, many of which are placed in prime locations within shopping malls. It is the exclusive distributor of brands such as Mizuno, Caterpillar, TYR, Dunlop Sports and non-exclusive ones such as Reebok, Adidas, Nike and Skechers. Planet Sports, with 20 outlets in the country, is the licensee in India for leading sports brands such as Puma, Speedo, Converse and Wilson, among others

SPORTSWEAR ( shoes) RETAILER Reebok India Ltd Nike Adidas Action Planet Sports Royal Sporting House PRESENT IN NO CITIES 52 25 Across all over India Across all over India 8 cities All major cities

The sportswear market is the only sector in India that has the presence of all three top International brands. The year 1996 witnessed the entry of Nike, Reebok and Adidas that gave a new dimension to footwear and fashion retailing in the country. Playful promotion campaigns, world class merchandising and the internationally styled stores enthused consumers to go for an extra pair of shoes and a couple of extra T- Shirts and add a little bit of sporty images to their lifestyle. Each of these three brands is today targeting nationwide expansion and the Rs.495 crore active sportswear market is suddenly beginning to look a lot bigger than its actual size. As mentioned above, these brands are not just confined to footwear. Merchandise at Reebok, for example, includes 45 percent apparel. The company has been experiencing a combined annual growth (CAGR) of about 36 percent. Nike stocks 60 percent footwear, 35 percent apparel and 5 percent fitness & sports equipment. The emphasis though remains on male customers with 70 percent offerings to this category, 25 percent to ladies and remaining 5 percent to kids.

Competition from Non-Specialist Retailers

As has been observed in developed markets like UK, in the near future 'mainstream' footwear retailers in India like Bata, Liberty, Nike, Woodland etc will face increasing competition from 'non-specialist' retailers like apparel retailers diversifying into footwear and discount hypermarkets and retailers such as Big Bazaar and Vishal Mega Mart. These non-specialist retailers are likely to grow their market shares by increasing range of products offered and

22

shopping space allocated to footwear. Mainstream retailers would have to respond to this threat by continuing to invest in their brands, store environments and product differentiation in order Nike, Adidas and Reebok have shown the way to differentiate, others need to find better ways. This shows the company is gradually reducing its involvement in day-to-day management of stores by taking on more franchisees. Sales increased from over Rs.582 crore in 2003 to Rs.611.4 crore in 2004 and the company is hopeful of achieving Rs.673 crore in 2005. The change is certainly paying off. But Bata has thus far remained exclusive to footwear with just 5 percent income from other items. Introduction of an exclusive range of merchandise that compliments the core product could possibly work wonders

Innovative locations & distribution strategies

In USA, shoe retailers are getting creative as far as location selection is concerned. In an 'overmilled environment, retailers are hunting for alternative and even innovative locations to reach out to their target segment. Thus, shoe retailers are opening up shop in health clubs, resorts, airports, train stations etc. However, in the Indian context, this trend is not foreseen in the near future though once footwear retailers exhaust the option of expanding presence through shopping malls, the need to search for such innovative locations would evolve. Offering a wide range of products along with experiential retailing are key factors to achieve success in the footwear retailing market in India. Further, establishing a wide distribution network across the country is also vital. Traditional players like Bata and Liberty have established a stranglehold in the industry primarily due to their massive distribution capabilities both through exclusive showrooms as well as multi-brand outlets. Moreover, coming together of competitors within the segment through cross-promotions and tie-ups benefits not only the players involved by enhanced reach, but also the consumer as it gives them access to a wider range of products and brands. This is in line with international trends and is already prevalent to a certain extent in India. Action too is one example of a brand gaining significant market share without much emphasis on its exclusive retail network. This sports and relaxed footwear brand today has sales figures that closely match that of market leader Bata. Cross-promotions gain an even greater significance in the Indian context with the absence of legislation favoring foreign direct investment in the retail sector. These tie-ups enable international players to ride on the existing distribution network of local players and go a long way in creating visibility for the foreign brand. For example, Reebok India tied up with Bata in 2001 for sale of its Reebok and Rockport footwear in Bata outlets. Lastly, for footwear retailing to truly thrive, government initiatives are required to rationalize the current tax structure that favours the unorganized segment.

23

4.3 Apparel

Indias textiles and clothing together account for 4 per cent of GDP, 14 per cent of the Industrial output, 30 per cent of Indias exports and 35 per cent of foreign exchange earnings (Centre for Education and Communication). The garment sector alone employs over 3.5 million people and is the one of the few sectors where employment has been growing over the past few years. The performance of the apparel industry has been largely dependent on the growth of the textile industry. The Indian textile industry has increasingly benefited since the post-quota regime [the multi- fiber agreement (MFA) which governed global trade in textiles and clothing since 1974, was dismantled in December 2004] in terms of higher textiles exports, especially due to the demand from UK and US retailers. As per Technopak's estimates, the current size of the domestic consumption of textile and clothing is about Rs 88,000 crore; including home textiles, the market size increases to almost Rs 100,000 crore. This market is likely to grow to as much as Rs 180,000 crore in the next five years, with the domestic market as the main growth driver. The growth has been on account of various factors like population growth, demographic and lifestyle shifts, and increased spending of the middle and lower income strata of the population. Recognizing the export potential of the garment sector, the government of India has launched Apparel Park for Exports scheme to impart focused thrust for setting up of apparel manufacturing units of international standards at potential growth centers. The Apparel Parks for Exports Scheme has come into operation since March 2002.

The Indian Apparel Market

The apparel sector is structurally a labour intensive, low wage industry with some differences across its market segments. In the high-quality fashion market, the industry is characterized by modern technology, relatively well-paid workers and designers and a high degree of flexibility. The competitive advantage of firms in this market segment is related to the ability to produce designs that captures tastes and preferences, and even better influence such tastes and preferences in addition to cost effectiveness.

24

The total clothing market in India is estimated at around Rs 78,000 Crores (source: Images/KSA Technopak 2004 Fashion Textiles Yearbook, published March 2005). This market universe comprises of all forms of clothing including school uniforms; and is still largely traditional wear with made-up garments produced by local tailors from cloth bought by the consumer. The Indian apparel market was valued at over INR 780,000 million, in 2004 and is dominated by unorganized players having a share of about 80 - 85%. The mens segment dominates with 42% market share while the women and childrens wear have 34% and 16% market share respectively. Uniforms account for the remaining 8%. The growth rate in the apparel segment averages about 12% across the categories. The womens wear segment appears to show most potential at 13%. Indias Apparel Market Size 2003 and 2004

As can be seen from the table above, the overall Indian apparel market is growing at a rate of about 13% per annum in value terms driven by two main factors: population expansion and increasing purchasing power.

25

Growth of Indian Apparel Market

Indian Menswear Market

FY05 Volume (Mn Units) Shirts Trousers Suits, jackets, blazers Casual Jackets T-Shirts Nightwear Undergarments Woollens - shawls/wrapons Lungis, Dhotis & other forms of men's apparel Total 313 185 12 14 80 77 380 13 Value (RsBn) 95 67 23 6 17 12 18 3 FY06 Volume (Mn Units) 323 192 13 14 83 79 396 13 Value (RsBn) 108 75 25 7 19 13 19 3

223 1297

21 261

229 1342

23 292

The core segment of the apparel market comprising of menswear, womenswear and childrenswear can be classified into the following two categories:

26

1. The ready-to-stitch (RTS) segment, where the consumer purchases the fabric from a retail outlet and then uses the services of local tailors to convert them to ready garments and 2. The ready-to-wear (RTW) segment, where the consumer purchases a ready-made apparel garment. Readymade Segment Category Men Women Kids Total Readymade (%) Tailor made (%) 37 21 12 27

63 79 88 73 (Source: Images Yearbook Volume I No. II)

The RTW market is a growing one in India and this growth has accelerated over the past ten years in line with the economic development and changes in lifestyle of the population. In most other mature and developed countries, RTW apparel is the norm. The RTS segment in these countries is meant for designing couture wear for the more elite classes. Even in China the RTW market has become the norm and very little local tailoring services exist. Within this overall RTW segment, branded RTW apparel in India has been growing exponentially at about 21.8% every year and is witnessing a higher growth compared to unbranded RTW segment. This is reflected in the growing number of fashion labels being associated with Indian products. This growth is driven by the growth in disposable income and the expansion of organized retail infrastructure. Proportion of branded vs. unbranded RTW apparel in India

27

Proportion of branded in different categories

The above graph shows the proportion of the branded and non branded ready to wear apparel in the Men, Women and children categories. In all the categories share of unbranded categories is higher than the branded one. The branded apparel is highest in the Mens segment. At the same time the kids have the 90% of unbranded apparel.

Government Regulations
Over the years, the Government of India has taken many initiatives for the growth of the sector. Some of the measures taken by GOI are as given below: a) The productions of ready made garment is no longer reserved for small-scale industry. b) GoI has permitted foreign equity participation upto 100% in the sector through automatic route. c) The excise duty on RTW garments has been abolished. d) The value added tax is being implemented by various states, which will simplify the tax structure and reduce the tax burden on branded garment manufacturer.

28

Indias Branded Fashion Industry

29

Denim/Jeans Denim/Jeans is a segment valued at Rs. 19 bn. There is a huge potential for manufacturers in this segment, especially in the mid-price and economy segment as there are very few players. The premium segments are growing faster than the economy and lower end segments confirming the movement towards aspirational products and the growth of the premium segment.

Jeans Particulars

Super Premium Premium Middle Economy Low

2002 2003 2004 Volume Value Volume Value Volume Value (Mn (Rs in (Mn (Rs in (Mn (Rs in Units) Bn) Units) Bn) Units) Bn) 0.02 50 0.03 100 0.06 200 1.2 6.1 13.8 15.8 1800 4600 5500 3150 1.5 7.05 15.13 16.13 2250 5300 6050 3200 1.9 8.1 16.6 16.4 43.06 2800 6100 6650 3300 19050

Total 36.92 15100 39.84 16900 Source: Images Yearbook Volume I No. II, dt.31st December, 2005)

30

31

Stack on the right rack

The Product Hierarchy Department Ex. Lee

Sub Department Ex. Top Wear & Bottom Wear

Class Ex. Shirts/T-shirts

Styles Ex. Button-Down & Half Sleeves

Options Style X Colour

SKUs Styles X Colours X Sizes

Here in the above chart we can see that the hierarchy of the product in the shop. First they are emphasis on main Department, and then the sub department and lastly they go for the Stock Keeping Units (SKUs)

32

4.4 Consumer Durables

On the back of robust semi- urban and rural demand, the consumer durables industry has recorded upbeat growth trends in 2006 (India Brand Equity Foundation). According to ORGGFK estimates, the overall industry sales have grown by 8-10 per cent to 71 lakh units for the first half of 2006. While sales of colour televisions (CTVs) have grown by 9 per cent to 37 lakh units, 21 lakh units of refrigerators have been sold, an increase of 9 per cent. Similarly, washing machines sales at 7.6 lakh units have been up by 4 per cent and air conditioners sales at 6.02 lakh units have increased by 54 per cent. The forthcoming festival season is expected to give a further fillip to the industry.At the disaggregated level, conventional CTV volumes have fallen by 17 per cent to 6.4 lakh units, while those flat TVs have grown by 53 per cent to 1.9 million units for the first half of 2006. Market sources indicate that most CTV majors have phased out conventional TVs and have instead been focusing more on flat TVs. In the refrigerators market, the frost-free category has grown by 8.3 per cent while direct cooling segment has grown by 9 per cent. While companies like LG, Whirlpool, and Samsung have shown double-digit growth in the direct-cool refrigerator market, sales by Godrej have dipped by 8 per cent during the period under review. In case of washing machines, the semi-automatic category with a higher base and fully-automatic categories have grown by 4 per cent to 5.26 lakh units and by 8 per cent to 2.29 lakh units, respectively. In case of the air-conditioners segment, sales have jumped by 54 per cent to 6.02 lakh units. The sales of window ACs have grown by 32 per cent and split AC have grown by 97 per cent. As per the Index of industrial production (IIP), the consumer durables industry has maintained its growth momentum at 15.7 per cent in April-July 2006 as against a rate of 13 per cent registered during the corresponding period last year. The consumer durable majors, particularly manufacturers of televisions, air-conditioners and washing machines hope that the coming festive season would be a rewarding one in terms of greater sales and profits. In 2005, the sales and profits of 22 durable companies had peaked their quarter-on-quarter (Q2 over Q1) growth by 43 per cent and 38 per cent, respectively. The consumer durable companies expect that sales would grow by 40 per cent in the forthcoming festival season.

33

4.5 Gems & Jewellary

India has a special claim to prominence in the gemstones and jewelry markets: it is the worlds leading producer of finished jewelry and polished precious stones. Gemstones and jewelry represents the most significant specialist segment of Indian retailing, accounting for a high proportion of total retail spend, and also representing a growing global retailing operation as Indian retail chains begin to expand into high-value markets in the Middle East, Europe and the U.S.

India is not only the largest importer and consumer of gold, but also a major exporter of gems and jewelry (Indian exports are currently worth around US$15.7 billion annually).1 India now accounts for 55 percent of global net exports of cut and polished diamonds in value terms, and is the world leader in the processing of rough diamonds: 11 out of 12 stones set in jewelry worldwide are processed in India. Gold dominates the jewelry market, although platinum and diamond products have been gaining market share at the very top end of the market. Gold jewelry is estimated to account for around 80 percent of the Indian market. According to Indias Gems and Jewelry Export Promotion Council, the total jewelry market in India is around US$13 billion, of which diamond jewelry makes up about 20 percent. The segment is dominated by very small family-owned retailers, and the total size of the market is difficult to measure. Indian households have traditionally relied on a family jeweler to provide quality assurance. Consumer brand awareness is low. Regional festivals and customs drive demand: most purchases take place at festival periods and to celebrate family rituals such as marriages and births. However, the market is evolving, as are all Indian markets. More families are forming, and double-income households are growing. Organized jewelry retailers are increasingly offering brand solutions to the demand for quality and value, as consumers move away from traditional family retailers. Branding is a key issue for organized retail, say jewelry companies. Unorganized family-oriented retailers dominate this sector, and many buyers prefer to rely on known local jewelers than to buy in formal shops. Companies say that brand development will be the key to growth for organized retailers, but expect this part of the segment to grow rapidly as Indian buyers become more mobile, more independent and younger.

34

In the future, it is likely that fewer and fewer diamonds will be exported, as Indian companies now prefer converting them into jewelry, where the revenue earning potential is much greater. On the whole, the future for jewelry export looks bright. The Gems and Jewelry Council is expecting exports to increase to US $17 billion by the year 2007. This is definitely the silver lining that all the exporters are looking forward to and if possible, they are hoping to overachieve this target.

35

4.6 Fast moving consumer goods (FMCG)

Some companies prefer to categorize food and beverages retailing as part of the fast-moving consumer goods (FMCG) segment, which also comprises household and personal care products, confectionery and tobacco. Overall this segment accounts for around 80 percent of consumer spending in India. As with many other retail segments, companies say the main driving forces in the FMCG segment are raising disposable income together with changing lifestyle patterns in India. Lowpriced products constitute the majority of sales volume, and lower income and lower middleincome consumers accounting for over 60 % of sales. Rural markets account for around 56 percent of total FMCG demand, although some companies believe that much more can be done by the organized sector to tap rural demand. Road infrastructure is improving and communications infrastructure is improving, says a vice president of a leading FMCG company; There is no reason why as many as 300 million new consumers cannot be brought into the consumer basket. Just by increasing the geographical reach, there will be enormous growth in the FCMG sector. After four years of growth of between 1 and 1.5 percent, the segment saw revival in 2004, driven in part by a surge in retail innovation. Retailers introduced price cuts, and launched new packaging sizes together with discounts and promotional offers. In the fast growing categories within the FMCG sector, the packaged food category has recorded a robust 25 per cent growth in 2005 over the previous year (AC Nielsen, South Asia Customized Research). This is mainly due to the changing preferences from home- made meals to ready-to-eat foods of Indian households due to longer working hours and increase in the number of working women and nuclear families. According to a report by HSBC, apart from packaged food, currently, the fastest growing segments in the sector are hair care, household care, male grooming, female hygiene, chocolates and confectionery. It is estimated that the total size of the FMCG sector will rise from around US$ 12.51 billion in 2005 to US$ 20.40 billion in 2010.The buoyant performance of FMCG sector has also been reflected in the aggregate results for April-June 2006-07 of 12 FMCG companies with sales of Rs 9,231 crore, a rise of 16 per cent. The profits of these companies have increased by 16.6 per cent to Rs 1,415 crore. By a large margin companies identify poor infrastructure as the key constraint in the FMCG segment, as in other sectors of the economy. Bureaucratic control and the lack of a single window administrative procedure to approve new business investments are also considered constraints, although in interview many companies concede that Indians bureaucratic handling of business issues is improving quite fast. The FMCG segment is also the area of retailing where companies are most likely to cite FDI controls on retailing investment as a constraint to growth.

36

5. PEST ANALYSIS:
Political Analysis:
FDI in retail: Even 50 years after the independents policy makers continue to be intolerant. Fears of foreign imperialism have not yet drawn away and continuing to be a barrier for the entry of foreign enterprises. Since 1991 a number of breakthrough were made in liberalizing the policies for foreign investments every policy decision has been influenced by foreign imperialism. India has opened almost the entire manufacturing sector to FDI including the most sensitive defense equipments. Furthermore the recently constituted export committee on FDI has recommended further opening up of such areas as real estate to FDI. But ironically a less sensitive and significant contributor to economic growth retail trade has been excluded from the liberalizations list. The panels appeal is that foreign funds may affect the small firms existence endangering employment opportunities. It looks as if there is a disconnect between policy makers perceptions and global FDI trends as also the structural changes in the economy. Accounting for over 8 percent of the GDP in the West, retail business is the largest private industry ahead even of finance and engineering. Over 50 of the fortune 500 and about 25 of the Asian Top 200 companies are retailers. Thailand and Indonesia, which were affected by currency instability, pepped up the deregulatory measures to attract more FDI in retail business. Japan under a prolonged recession and extended downfall in domestic investments abolished its Large scale Retail Store Law to Attract FDI. In contrast the organized retail business in India is very small. This is despite the fact that India is number emerging market for retail business. Retail business contributes around 10-11 percent of GDP. It amounts to about $350 billion market and Six times biggest than Thailand and Four Five times bigger than that in South Korea and Taiwan. India also has the largest number of retailers, about 12 million though they mostly small. The significance of the retail business has increased with the fast growth in the service sector. There has been a dramatic change in the economys structure post liberalization.

37

It is ironic that while FDI has become an important instrument to revive sluggish economies India opens up sectors with little potential for such flows. It must realize that FDI is a very competitive market. Much of the rapid growth in organized retail business in the developing countries is due to the entry of global retailers. In Thailand, seven of the worlds top 10 retailers have made significant investments Carr four, Casino, Marko, Royal Ahold, Jusco have set up shop in Thailand. In China, three of the top 10-globle retailers have made investments. Such as Carr four, Wal Mart, 7-Eleven and in Brazil three top global retailers share about 30 percent of the retail market. Competition is growing in the retail business and super stores are being set up, in the rural areas, customers are entirely at the mercy of retailers. Things had begun to look up since the late 1990s, with a boom in the consumer durable industry, and improved services. With rising income and changes in life style, demand for better products became insistent. Big industrial houses, such as Tatas, RPG group, Piramal group, Reliance group (Mukesh Ambani), Aditya Birala group, Mr. Sunil Mittal (Bharti) realizing the potential of the retail business, are now rushing for a place in this segment. Over the last five years, these groups have set up a number of chain stores. For instance, Westside by Tatas, Foodworld by RPG, Shoppers Stop (Rahejas), Future group and among the entire players Reliance is leader in organized retail. Organized retailing is also emerging as an important gateway for the sale of food products. In Chennai, about 17 percent of food sales flow through supermarkets. In the metros, most women have shifted to supermarkets from street corner grocers. India offers vast potential in retail business and this potential must be fully realized by exploited by making the country an attractive destination for FDI.

THE FOLLOWING WOULD BE THE BENEFITS OF FDI IN RETAILING:

An important growth sector of the economy. Attract significant inflows of capital. Generate employment. Increase efficiency and competitiveness to the benefit of the consumer. Bring best management practices and access to world- class technologies.

Basis of debate:
There is always a debate about permitting FDI in a particular sector. Just like any other sectors, permitting FDI in retailing has its own implication. However, the positive aspects speak more

38

than the negative connotations. As direst fallout of FDI in retailing, domestically big players will be exposed to certain benefits like: Easy access to funds since organized retailing is a big pocket business. Cost of setting up hypermarket in India is approximately Rs. 10 cr. Organized retailing in India is still in its infancy with FDI domestic players having availability of foreign expertise. Foreign players will invest heavily on improving supply chain management, which in turn will bring in operational efficiency as in China. However over time, it is inevitable that organized retailing will take a higher share of the market compared to small, single outlet operators. Recent analysis by KSA Technopak, based on experience in other emerging markets, suggests that it would take up to 10 years for organized retailing to reach a 20% share of sales. Small shops in India have the advantage of convenient locations, relationships with customers and often offer value-added services (credit, home delivery), which organized retailers, cannot match. The urban geography of India and current transport systems make it harder for consumers to travel to destination shops than in other countries. In rural areas, equally, the impact of organized retailers will be minimal for many years to come. So, while organized retail should expand rapidly, and take relative share from traditional retailers, there should be more than enough market for all. This has been the experience elsewhere in Asia. In Thailand, in 1995-2001, the number of supermarkets grew by 178% to 170 outlets, yet the number of small, local convenience stores grew by 409% to 5750 outlets. Other initiatives: Apart from opening the sector to foreign investment the government can also explore different possibilities that can enable the growth of the sector. Government can take following steps to develop retailing in India. Grant industry status to retail: This will result in the other benefits besides changing mindset within government. Fiscal incentives Organized financing Labor law amendments Driving quality manpower in retailing.

Solve real estate problems: Shortage and high cost of appropriate real estate is one of the major hurdles for growth in retailing. This is largely the result of planning controls, tenancy legislation, and high property taxation. Government can ease such laws and make available property at reasonable process to retailers.

39

Ease regulatory control and licenses: Multiple and complex regulatory controls and licenses are major hurdles for growth in retailing. KSA Technopak put the number of licenses required by a retailer at 41. The introduction of single window clearance for all licenses for stores at the local government level can do away with this difficulty.

Reduction in duties: The Government of India has reduced customs and Import duties on many products. This will be beneficial for retailers dealing in foreign goods as well to the multinational companies who are producing full or a part of the product in foreign countries and exporting it to India.

Economic Analysis:

Per Capita Income The per capita income of India in the year 2004-05 was $400 approximately, which has increased to Rs. 38, 04 in the year 2008-2009 on 09 Feb. 2009. This is a positive sign of India moving onwards a developed economy. Among with rise in per capita income of Indian consumers the standard of living is also increasing. The purchasing power has also increased considerably, leading to more spending to more spending on various products. It is the mentally of Indians that they spend majority of their income in the food and hence the food retail sector has seen at tremendous growth lover a period of time.

Dual working Families It has been witnessed that the no of. Families where both husband and wife are working is constantly increasing. In family where both husband and wife are earning will bring income as compare to single working family. This would result in more spending on various goods and services, which will make life convenient and easy. Supporting Facilities Nowadays banks are providing loan at very low interest rates and in some cases the interest rates is nil. This helps consumers to buy the required products when ever they wants even if they dont have money ready in hand as a result of this people of this people do not hesitate to spend small and big amounts on various products right from music system to a house. This has resulted in fast buying decisions.

40

Social Analysis:
Buying Habits The buying habit have changed are still changing. Bulk buying and storming of goods is becoming common now days. People have become aware about the availability of products. Customers have now been able bifurcate different products suitable for its users i.e. for a product like toothpaste customers are buying different toothpaste for kids and different toothpaste for the elderly ones. Proper usage of product has also been understood and applied. The customers have now become able to judge as to what price should be paid for a particular product. i.e. whether a product is worth paying for the price asked. In the past customers where more brand loyal towards products and the conditioning was such that they would not even think about to change the brand of the product being used by them but now things have changed. People are readily accepting new things and have not restricted to use the same products. Changing Culture and Preferences The culture and the habits of the people are changing now a day. There has been a deep impact of western culture in India. People now free adopting western culture, which is based on, convince i.e. buying goods in bulk and then storing it, fast-food, nightlife, people have started buying branded goods, customer do not hesitate to spend more for qualitative goods, spending more on products which makes life easy-microwave, washing machine, eating out in hotels and restaurants, people consider shopping as an experience, involvement on selection of goods keeping in mind the quality, benefit and convince. All of the above changes in cultural preferences have given a huge opportunity for the retail sector to grow. Physic of Indian Consumer The physic of Indian consumer, which had many barriers, is now braking up and people are readily accepting things. Previously it was a psychological barrier in the minds of consumers that the more big, decorated and very well lighted a store is the more costly it is but this barrier has been broken by outlets like Big Bazaar, V Mart, Metro etc. Even people from lower middle class have started visiting and buying from such outlets. Word-of-mouth has increased the people influence & people more want the branded goods.

41

Standard Of Living There has been a massive increase in the per capita income of the people of India. This has ultimately resulted to an increase in the standard of living of Indians. Consumers are more and more buying products, which make life convenient and easy. The sale of consumer durables, spending on food and clothing etc. has increased to considerable extent. This has resulted in an overall raise in the standard of living of Indians. Customer Centric Focus Retailers have started being customer centric and are focusing more and more on consumer needs and convince. Efforts are continuously being made to provide more and more facilities to consumers to make shopping a convenient and a good experience changing trends, culture and preferences of consumers are constantly being monitored to keep up with customers expectations. Home deliveries, shopping thought credit cards, buying on installments, easy loans. Are fall efforts made in this direction? Age: Product needs and interests often vary with consumers age. Different age of people have different kind of product needs. Right now organized retail has mostly of young customers (between 18-25 ages) and middle age customers (between 26-45 ages). Purchase of goods by young and middle age customers are mostly different. Young customers buy apparel accessories and footwear whereas middle age customers buy food and grocery products. In case of kinds they demanded school bag, stationary and chocolate. So we can say that role of age is very important for consumption of organized retail product. Young population with high disposable income India has the lowest median age of 24 years, for its over 1,000 million strong population, among the other highly population countries. Thus India has the largest young population in terms of sheer size and this young segment is the major driver of consumption as they have the ability (disposable income) and willingness (consumer confidence) to spend. Most of such upwardly mobile consumers have little personal time and they seek greater variety and availability of items under a single roof and give highest preference to convenience, which is the basic proposition of modern retailing formats. The brand-conscious young population forms the largest segment of demand for the majority of retailers. This segment has grown 3.22% per annum over the past decade, compared to the overall population growth of 2.13% per annum. Gender: Some products and services are quite naturally associated more or less with male or female. For instance, women have traditionally habits of more shopping in comparison of the male. Marital Status:

42

Single customers and married customers have different need of product. In organized retail, married women buy a product for entire family so they buy number of products. Where as single person buy a limited product. In today scenario, numbers of working couple are increases. So, they want to buy all products from one place. Because most of time they are busy in their job. Working married women buy more number of products for their family. So, marital status is important for organized retail.

Changing age demographics in India

Income: Now a days income of Indian people is increases. So they consume more. Income have directly related with purchasing power. More income means more purchasing power. Today consumer mind set is totally changed, they spend more, and save less. So, more income of consumers means more business of organized retail. Education: Educated people of big cities like to go for shopping in organized retail. Because good shopping experience, and more variety available at organized retail outlets. Occupation:

43

Professional and white collar level jobbers are mainly go to shopping at the end of the weeks and they buy in the bulk. Actually they go for shopping as well as for the entertainment. So, occupation factor affect the organized retail.

Technological Analysis:
Modern technology is one of the most powerful assets for a business. Moreover so for a retailer dealing with multiple products, a chain of stores, various vendors, served warehouses, hundreds of employees and thousands of customers with sophisticated systems., a retailer can make each of its processes simpler, smoother and fast resulting in a super efficient enterprise offering the best range of merchandise and superior service to its customers. Indian retailers have been spending more and more in setting up IT systems and, importantly, plan to hike up their investments in this area in the future. Retailers are also looking beyond basic expenses to higher levels of it functionalities. This chapter presents the findings of the State of Retail Technology in India Behind every successful retail store there is a reliable and efficient information technology system. Modern technology has the ability to improve and make more efficient each function of the retail businesses. Retail needs IT for all core processes planning, ordering, sales, finances, human resources and so on. The reason behind it is the complexity of issues involved. Which good are moving and which are not Are the vendors supplying goods on time? Which goods are available at the warehouse and what needs to be ordered? What should be ordered in the next season? Whish customer is buying which products The financial performance of the company Managing the employees of the organization How provide fast and efficient customer service. IT links the various areas of the retail businesses into an integrated structure and helps the flow of information across he organization. After all, this is what successful retail is all aboutskillful managing several contact points both at the front and the back end without integrated systems the retailer may be unable to get timely information, which is the key to future purchases for the store. Each of these challenges can be met by employing suitable software and creating bridges between them to integrate the entire organization. The chief software requirements of a retail enterprise are: Merchandise planning and management software:

44

This is typically an ERP and business intelligence package that generates data on what is moving at that store level, analyses the data and helps in the planning process. Typically, the planning or business intelligence software mines the data generated by the ERP and helps in the future planning process.

Vendor management software: It deals with the entire process of vendor selection evaluation and transactions. This software needs to be linked to the ERP for best results.

Outsourcing: Like international retailers who resort to third party vendors for most of their maintenance and enhancement work, RMCs study seems to indicate that Indian retailers also have tried bulk of their IT activities. Companies are looking at outsourcing since it helps free up critical resources for core functions. Lack of internal expertise is another reason. Significantly, availability of standard applications is cited as one of the main reasons for outsourcing. These points to the popularity of best of-breed package applications among Indian retailers.

Logistics and warehousing software: It links the transporters and warehouses to the ERP. This software generates auto replenishment notes, helps in storage of goods at the warehouse and also offers the best logistics solution for goods transportation.

CRM software: This manages the loyal customers, tracks their purchase patterns, maintains the loyalty programme schemes of the company and provides an important input to the merchandise planning process. This program also includes the point of sales software, which acts as the data generating tools for the effective functioning of the software.

45

Financial software: This is the heart of any retail organization and all software needs to communicate with this programme. It generates the financial statements of the company and keeps a tab on expenses.

HRD software: This helps in the management of employees, takes into account their training, development, appraisal and salaries. There are several players in the retail software space. These include SAP, Polaris, JD Armstrong, Retail Pro, SAS, Intensia, Oracle and many others. Some are ERP providers while the others also offer business intelligence solutions. Some may have only one of the several modules required by the retailer. The retailer, therefore, needs to implement different programs and then link them so that these can communicate with each other. Interestingly, more and more organizations are going in for software developed in house. Several organized retailers use their own software rather than depend on external solutions, which usually are more expensive. Also, since most of the players are very small, they are unable to manage with rudimentary inventory control and management systems.

Reasons for spending: The study under threats an interesting detail regarding the Indian retailers approach towards retail IT spends. Unlike more mature markets in the west, Indian retailers are looking at investments in retail IT more as a means to stay competitive rather than justification of spends in terms of return on investments (ROI). For most of the existing retailers, IT is a powerful tool for tackling competition.

46

6. SWOT Analysis
S-W Analysis
The S-W analysis refers to Strengths and Weaknesses of the industry. Here we have compare the Indian organization Industry with International Organized retailing Industry. The comparison will give idea about where the Indian industry as compare to the World organized retail industry. The S-W of the Indian Organized Retail Industry is discussed as below:

STRENGTH
Low Labor Cost: The labor cost in India is one of the lowest in the world. Wage rates are very low for the labors which make the production cost lower than the production cost in the other country. Foreign players cant afford the product at such lower cost, which will directly affect to their profitability. High availability of space: There is huge space available for setting the retailing sector in any place of India. Technology: Though India has low technology than Europe still it is sufficient to make organize sector booming. Developed Economy: Due to highly developed economy, Indian retail have still biggest chance to capitalize the market because increase in people spending.

WEAKNESSES
Access to the New Technology: International organized retail is already grown and they are using the latest technology for their operations. Where the Indian organized retail is at the introduction stage and it is difficult to access the new technology. The technological expertise is also required to access this technology. Untrained Workforce: The most important asset of the organization is the workforce of the company. Trained workforce is a precious asset of the company. As the Indian retail industry is at the growth stage so the trained workforce will be required for this industry. International industry has the train workforce. They are giving the training to their workforce.

Poor infrastructure linkage:

47

The infrastructure in India is poor as compare to foreign industry. Good infrastructure is required for any of successful industry. Foreign players are using the very infrastructure in terms of technology and other facilities.

OPPORTUNITIES & THREATS

Huge potential to grow: Retail is the booming sector of India in the present times. Retail, one of Indias largest industries, has presently emerged as one of the most dynamic and fast paced industries with several players entering the market. Accounting for over 10 per cent of the countrys GDP and around 8 per cent of the employment in the country. India is among 10 largest retail markets in the world. The retail sector in India is worth USD 394 billion and is growing at the rate of 30% annually.

Opportunity of business in Small Towns

A peculiar aspect of organized retail outlet retails can be seen is they are found in big citied in a particular locality only their lies a huge opportunity for such organized retailer to establish their business in small developing town where there is a dominants of only unorganized retail shop in organized outlets just because they have no options as there is no existence of such organized retail outlets in small towns and cities.

Exposure to international lifestyles The Indian consumers are getting increasingly exposed to international lifestyles. This can be attributed to the impact of globalization which has removed trade barriers and promoted consumerism. As a result, there is greater acceptance and demand for renowned brands. Most of the leading world brands like Levis, Pepe, Lee, Arrow, Nike, Reebok, Hugo Boss, Ray Ban, and Parker are now available in India.

Drivers of Growth in Organized Retailing The country is experiencing certain socio-economic changes which would fuel the growth in organized retail. Some of the key enabling factors are higher affluence levels, increased purchasing power of the average Indian consumer, changing demographic and aspiration factors of the Indian population and real estate developments across the country.

48

Changing consumer requirements and lifestyles Over the years, the consumer awareness has increased on the quality and the price of the products/services expected owing to the increasing literacy in the country and the exposure to developed nations via satellite television or by way of overseas work experience. Consumers are more vocal about the quality of the products/services that they expect from the market. This awareness has made the consumer seek more reliable sources for purchases and hence the logical shift to purchases from the organized retail chains that have a corporate background and where the accountability is more pronounced. The consumer also seeks to purchase from a place where his/her feedback is more valued.

49

7. 9 Ps of Organized Retail Industry:

Place:
Location is a crucial factor for success of retailing. This is because customers for the sake of convenience often resort to purchasing from convenience shops in their locality. This is the major challenge for the organized sector where they should aim to attract these customers to attract these customers to their outlets. Facilities of parking should be appropriate so that customers can park their vehicles and load the shopped items conveniently into vehicles .The location selected should have enough space easily available so that if in future if the retailer plans to expand his outlet he can do so without any hassle.

Personalization:
Service is a differentiator in the retail industry. It is essential to manage the customer better and to keep him around for a longer period of time. The potentiality is that his basket size could increase and also ensure a next visit. Knowing customer individually by name and profession, identifying his needs, helping him get and select his products goes a long way in procuring a customer, retaining him and converting him into a loyal and lifetime customer. Therefore the need is to build a retail talent. Adequate investment has to be made by the retailers in educating and training for development of managerial and skilled retail staff who would win over customers simply by their conduct.

Product and product offering:

Customers look for a wide assortment of products-branded as well as non-branded. Quality and other attributes of the product play a major role here. Hence the products should be in accordance with the customers perceived quality. Further, they show preference for freebies, discounts etc. this is one effective way through which a retailer can attract customers. Therefore to generate interest and keep interest alive apart from the product, various kinds of loyalty programs, festive offers, etc. should be introduced so that the customers keeps visiting and shopping on a regular basis.

Price and efficient management of the supply chain:

Though, drive towards spend is on rise, consumers do look forward for value for money. In the current scenario Indian customers desire for an ideal location, slush interiors, but is not willing to pay even a bit more. Whether it is the metros or the non-metros, customers are found to be price conscious and look for value for money and weigh decision before committing to purchase.

50

There has been a very prominent incident of an international retailer, which outsmarts other established retailers simply on the basis of price. This is the case of Wal-Mart, which beat Kmart simply by varying their price as much as 25 percent. It is utmost important for a retailer to reduce its costs as much as possible because at the end it is the final consumer to whom the costs are transferred. Hence through effective supply chain management, managing inventory levels and reducing other administrative costs helps to reduce the selling price of the product, which is the major attractor for a customer.

Physical evidence:
In the age of product parity, selling ambience has become a key strategic element for effective differentiation, successful retailers have customer-centric approach in designing and creating internal as well as external ambience. They explore the opinions to prolong the stay of shoppers in their store or mall. The important idea is to make shopping a social experience. Hence to cope up with the differentiation strategy in context with ambience some of the factors play an important role. They are good interiors where customers can get to see better display of products, store space for convenience, attractive colors of the walls and furniture, friendly approach of the staff, Illumination and lightning. Even the external ambience plays an important role which includes window displays, convenient parking facilities, gaming zones, food courts and ATMs are also a part of external ambience.

Perceived quality:
Customers now a day have become more quality conscious and over a passage of time have learnt to differentiate between various qualities of a product. Consumers do not hesitate to pay more in return of goods with excellent quality. It has become a general perception among the consumers that the goods sold in organized retail outlets are always qualitative and such outlets are bound to deliver qualitative goods along with a qualitative service. The bigger the name and the outlet is the more qualitative it is this as become a generally acceptable statement now a day. Hence for organized retail outlets this becomes a challenge as well as opportunity to attract and retain customers. The moment a retail outlet fails to deliver qualitative product or services, the chances of it doing a good business, reduces instantly. In the long run only the player, who has the ability to provide qualitative goods and service consistently, wins.

51

Process management:
The importance of process management is that it assures product and service availability and consistent quality. Without sound process management, balancing product and service demand with product and service supply is extremely difficult. Some of the issues concerned with process management are process planning and control, operations planning, facilities design, scheduling, inventory planning and control, quality control, operations control, forecasting and long term planning. All these issues are involved in organized retailing as the qualitative to be dealt in generally large while on the other hand customers expectations regarding product and service quality is also high. Hence it becomes extremely important to design and work with a sound process management.

People:
Employees represent the organization to the customers. No matter how large a store is, how branded goods it sell, how big its name is, unless it employees are not properly trained its success would always be a questions mark. After all it is the employees with whom the customers are going to react. Right knowledge about the products, good manners, helping nature and smiling faces is what the customers expect in a retailing business. Based on these qualities of employees an outlet would be able to bring in customers.

Private Label:
The big supermarkets in the country, offer the own private labels. The names sound like theyve been taken from a WWF programme sheet. Theres Vittorio Frattini, Kashish, John Miller, Ventiuno and tough sounding Stone River Classic. They are private labels that are on sale at the countrys major retail chains. The countrys fast-emerging retails chains have a cast cornucopia of established brands to choose from. Increasingly, however, they are filling their shelves with in-store or private labels. From Shoppers Stop and pantaloon to RPG enterprises Giant, Food World, Ajay Piramals Pyramid and Delhi based Ebony Retail; they are all readying with the private labels to jostle with the giant brands on sale. One of the first to embrace private labels was Westside, run by Tata Group of Companies. Because of Private Label company profit margin increases if percentage sale of Private Label is more in total sale. Private Label is cheaper for customers compare to branded product but quality is question mark. But in case of good stores they offer good Private Label product with value for money. In Private Label Company save advertising cost and good packaging cost so they able to sell lower price compare to branded product.

52

8. Michael Porters 5 force analysis

Even though competitive pressures in various industries are never precisely the same, the competitive process works similarly enough to use a common analytical framework in gauging the nature and intensity of competitive forces. As professor Michael Porter of Harvard Business School has convincingly demonstrated, the state of competition in an industry is a composite of five competitive forces. 1. The rivalry among the competing sellers in the industry. 2. The potential entry of new competitors. 3. The market attempts of companies in other industries to win customers over to their own substitute products. 4. The competitive pressures stemming from supplier-seller collaboration and bargaining. 5. The competitive pressures stemming from seller-buyer collaboration and bargaining. Porters five forces model, as depicted in the figure, is a powerful tool for systematically diagnosing the principal competitive pressures in a market and assessing how strong and important each one is. Not only is it the most widely used technique of competition analysis, but it is also relatively easy to understand and apply.

53

THE RIVALRY AMONG COMPETING SELLERS:

Particulars No. Of Competitors Better Service capabilities Price/Cost competition Industry growth Level advertisement Switching Cost Total Source: KSA Technopak

Weight 0.25 0.10 0.15 0.25 0.10 0.15 1.00

Very low

Low

Moderate

High 4

Very high

Total 1.00 0.30 0.30

3 2 4 2 4

1.00 0.20 0.60 3.40

For the most industries the major determinant of the overall competition state of the competition and the general level of profitability its competition among the firms within the industries. In some industries, firms compete aggressively-some times to the extent that price are pushed below. The level of cost and industry wide losses is incurred. Number of Competitors: The greater the number of competitors, the higher the profitability that one or more companies will be basely engaged in a strategic offensive interdeal to enhance their marketing standing there by heating up competition and putting new pressures on rival to respond with offensive or defensive moves their own. In the organized retail industry the number of the competitors is less in terms of market size. They are nearly equal size and capability; they usually compete on a fairly even footing. Industry Growth: Rapidly expanding buyer demand produces enough new business for all industry members to grow. In the fast growing market, a company may find itself stretched just to keep abreast of incoming orders, let alone devote resources to stealing customers away from rivals. Organized retail industry is growing rapidly. The present growth of organized retail industry is approximate 25% - 30% and its increase in the same way up to 2010. Price/ Cost competition: competitive pressures build quickly any time one or more rival decide to cut prices and dump excess supplies on the market. In the organized retail industry rival come under significant pressure to cut price or otherwise try to bust. Sales in this industry beginning the fixed cost are very high and differentiation is very less. Its major effect on the existing competitors position.

54

Switching cost: The less expensive it is for buyers to switch their purchases from one seller to another, the easier it is for seller to steal customers away from rivals. But the higher the costs buyers incur top switches brands, the less prone they are to brand switching. In the organized retail industry there are less differentiation in the product so the buyer are switch more over to another brand. Better Service& Capabilities: For any industry there capability and service in existing industry is major factors that analysis is important. In the organized retail industry product differentiation is less, so it is important to provide better services and have capability in the firm that buyers are satisfies. Level of Advertisement: In existing industry is more depends on advertisement activities to increase sales and market share or its depends on the value of products. In the organized retail industry their are more affect the level of advertisement because the product feature differentiation is less and cut cost competitor existing so firms are heavily increase their advertisement to attract buyers. The rivalry among the competing sellers would be different for different types of retailers of the organized sectors, lifestyle stores like PANTALOONS & WESTSIDE. The rivalry among hypermarkets is more in case of outlets dealing in the same line of products. E.g. the rivalry among BIG BAZAAR & STAR BAZAAR would be high as they are dealing in the same types of hypermarket. Here each outlet would try to attract customers by some other techniques related to product differentiation or some other tactics like introduction of schemes and offers. The same is in the case of super markets and hypermarkets where they goods dealt in are almost the same company. Here the rivalry is the highest as product differentiation is not easy. For lifestyle stores like PANTALOON and WESTSIDE the rivalry is high but not to extremes. Here also the firms try to attract the loyal customers of its competitors and at the same time try its best to retain its customers by providing them with various privileges, schemes & offers etc. The rivalry would be less among the firms dealing in completely different line of products even though being a lifestyle store. E.g. Competition would be very less between a lifestyle stores like Pantaloon and Westside.

Rivalry in the organized will intensify in the future as new entrants are entering in the Indian markets and there is not much product differentiation viable. Hence intense rivalry would lead to benefits the customers in both qualitative and quantitative aspects of products and services. Schemes would be offered to retain old customers as well as to attract new ones.

55

THE POTENTIAL ENTRY OF NEW COMPETITORS:

Particulars Government Policy Capital Requirement Customer loyalty Expected Attractive Profit Access to Distribution Channel Switching Cost Total Source: KSA Technopak

Weight 0.25 0.25 0.10 0.15 0.10 0.15 1.00

Very low

Low

Moderate 3

High

Very high

Total 0.75 0.50 0.20 0.60 0.20

2 2 4 2 4

0.60 2.85

Government Policy:Government policies can limit or even bar entry by requiring licenses and permits. In international markets, host governments commonly limit foreign entry and must approve all foreign investment applications. Stringent government mend dated safety regulation and environmental pollution standards are entry barrier because they raise entry cost for the organized retail government allows up to 51% FDI investment in single brand.

Brand preferences and customer loyalty: In some industries, buyers are strongly attached to established brands. High brand loyalty means that a potential entrant must commit to spending enough money on advertising and sales promotion to overcome customer loyalties and build its own clientele. Establishing brand recognition and building customer loyalty can be a slow and costly process. In addition, if it is costly or inconvenient for a customer to switch to a new brand, a new entrant must persuade buyers that its brand is worth the switching costs. To overcome switching-cost barriers, new entrants may have to offer buyers a discounted price or an extra margin of quality or service. All this can mean lower expected profit margins for new entrants; which increases the risk to start-up companies dependent on sizable early profits to support their new investments.

56

Capital requirements:The larger the total dollar investment needed to enter the market successfully, the more limited the pool of potential entrants the most typical capital requirements for new entrants are those associated with investing in the necessarily being able to finance the introductory advertising and sales promotion campaigns to build brand awareness and establish a clientele, securing the working capital to finance inventories and customer r credit, and having sufficient cash reserves to cover start-up losses.

Access to distribution channels:A network of retail dealers may have to be set up from scratch. Retailers have to be convinced to give a new brand ample display may have to be set up from scratch. Retailers have to be convinced to give a new brand ample display space and an adequate trial period. Entry is tough when existing producers have strong, well-functioning distributor dealer networks and a newcomer must struggle to squeeze its way into existing distribution channels. To overcome the barrier of gaining adequate access to consumer, potential entrants may have to buy their ways into markups and profit margins or by giving them being advertising and promotional allowances. As a consequence, a potential entrants own profits may be squeezed unless and until its product gains enough consumer acceptance that distributors and retailers want to carry it. Switching cost: The strength of competition from the potential entry of new players is significantly influenced by how difficult or costly it is for the industrys customer to switch to a new player. Switching cost include the time and inconvenience that may be involved in new player. Buyer incur high cost in switching to new player, the competitive pressure is low. When switching cost is low, its much easier for new players to convenience buyer.

Expected Attractive Profit: The competitive pressure from the new entries is high when the expected profit of the industry is very high. If the profit will be very low expected by considering the present growth and profit margins of the existing players then the entry of new players are very less. The potential entry of new competitors is moderate. It is because the main reason of cost of capital requirement to set up an organized outlet is high and so it is not anyones cup of tea to incur huge capital investments. On the other hand the entrants would be those who have adequate capital requirements, which will make them, stand even if they are incurring losses. Another factor that holds back the potential entrance of new competitors is that the economies of scale can be achieved at a very long stage in because of huge capital requirement and the working capital requirement is also high.

57

For many franchisee outlets and stores location plays a very important part. A specific location is always selected as per the target segment where a retailer can attract maximum no of customers and can gain location advantage. Many companies have policies that they allot locations for the store and no other stores would be given in that area to any other franchisee. There are some businesses in which there is some amount of government restrictions, hindrances or interventions. In such cases the no of new entrants in the business would be very less.

COMPETITIVE PRESSURES FROM SUBSTITUTE PRODUCTS:

Particulars Availability of Close Substitute Substitutes Price Value Profitability of the substitute Switching Cost Total

Weight 0.45 0.25 0.10 0.20 1.00

Very low

Low 2

Moderate

High

Very high

Total 0.90

4 3 2

1.00 0.30 0.40 2.60

Source: KSA Technopak Companies in one industry come under competitive pressure from the action of the companies in a closely adjoining industry whenever buyer view the products of the to industries as good substitutes. Strong the competitive pressure are from the sellers of substitutes products depends on four factors which are discussed below: Availability of Close Substitutes: the availability of substitutes inevitably invites customers to compare performance, features, ease of use, and other attributes. Competition from well performing substitute products pushes industry participants to incorporate new performance features and heighten efforts to convenience customer there products has attributes that are superior to those of substitute.

58

Switching cost: The strength of competition from substitute is significantly influenced by how difficult or costly it is for the industrys customer to switch to a substitute. switching cost include the time and inconvenience that may be involved like; time and cost in testing the quality and reliability of the substitute, psychological cost, etc; when buyer incur high cost in switching to substitute, the competitive pressures is low. When switching cost are low, its much easier for seller of substitute to convenience buyer to change to there products. Substitute price value: The presence of attractively priced substitutes creates competitive pressure by placing ceiling on the prices industry members can charge without giving customer and incentive to switch to substitute and risking sales erosion. When substitute products are cheaper then an industry product, industry member come under heavy competitive pressure to reduce there prices and find ways to absorb the price cut with cost reduction. Profitability of the Substitute: The competitive strength of the substitute products are the rate at which there sales and profits are growing the market inroads they are making, and there plan for expanding production capacity. The competitive pressure from substitute products is high as there is existence of huge unorganized market. The total share of organized market in India is only 3 percent, which supports to conclude that the products of unorganized market have a great dominance. In almost every sector under retail head whether it is food, clothing, and grocery there is much dominance of unorganized players. The key here for the success in the unorganized retail sector is convenience and presence. Shoppers feel it convenient and time saving to shop in an unorganized retail outlet where the major emphasis is on service. Moreover issues like bargaining; asking for schemes or offers, customizations etc is offered only by the unorganized retail sector. The threat of substitutes is different for different products like for clothes it depends on a customers budget, for FMCG goods the products offered are generally the same so it differs on the choice of customer whether he or she wants a shopping experience or a fast service, low priced goods or convenience, choice of food or saving time and money.

59

COMPETITIVE PRESSURES STEMMING FROM SUPPLIER BARGAINING POWER AND SUPPLIER-SELLER COLLABORATION:
Source: KSA Technopak The firm in an industry operates in two types of markets: in the markets for inputs and markets for outputs. In the market of output firms sale there goods and services to customers who may be distributors, consumers, or other manufacturers , how this value is shared between them in terms of profitability depends on their relative economic power. Particulars Weight Very Low Moderate High Very Total low high No. Of Suppliers 0.25 4 1.00 Supplier threat of 0.15 2 0.30 Forward Integration Industry threat Of 0.20 4 0.80 Backward integration Industrys importance 0.15 4 0.60 to supplier Switching Cost 0.25 4 1.00 Total 1.00 3.70

Number of Suppliers: The number of the supplier and the goods supplied by them are affecting the industries attractiveness. If the number of supplier is more then the bargaining power of supplier is less. If the supplier of goods and services are more value and suppliers are less then supplier side bargaining is stronger. Switching Cost: Switching cost is high when the suppliers product is different from the other suppliers or it is more valuable to buyer. Suppliers threaten of Forward Integration: Some suppliers threaten to integrate forward in to the business of industry members and perhaps become a powerful rival. Which make supplier bargaining power is strong.

Industry threat of Backward Integration: The make or buy issue generally boils down to whether suppliers who specialized in the production in particular part or component and make them in volume for many different customers have the expertise and scale economics to supplys as good or better component at a lower cost them industry member achieve via self manufacture. If the industry member integrate

60

backward in to the business of suppliers and to self manufacture their own requirements, at that situation bargaining power of supplier is low. Industrys Importance to Supplier: If the suppliers is monopoly or expertise to product development or important to buyer then its threats for industry. The bargaining power of supplier is low in case of organized retail sector. This is because in case of retail outlets lie BIG BAZAAR, PANTALOONS, WESTSIDE as compared to an unorganized outlet purchase goods on a large bulk. While doing this an organized retailer would be able to dictate terms with the supplier on part of prices, buying, returns & exchanges, schemes etc. Due to buying on huge volumes a company is bound to offer various facilities that an organized retailer asks for. Consider that BIG BAZAAR stops selling a particular brand of commodity. In such an outlet where the numbers of customers visiting are in thousands the company would have to suffer a major setback in terms of sales.

The bargaining power of supplier would be high only when the products have a high demand and low supplies. E.g. imported goods. Here the seller is dominated by supplier in terms of prices and bulk buying etc. but practically such a situation is very rare to find.

61

COMPETITIVE PRESSURES STEMMING FROM BUYER POWER AND SELLER-BUYER COLLABORATION:

BARGAING

This is one of the competitive forces of the five forces model, which show the bargaining power of some or many buyers for the price concessions and other favorable terms and conditions of sale. The lower the bargaining power of the buyers the better (more attractive) the industry is for this force.

Particulars No. Of Buyers Supplier threat of Forward Integration Buyers threaten Of Backward integration Switching Cost Total Source: KSA Technopak Number of buyers:-

Weight 0.30 0.25 0.30 0.15 1.00

Very low

Low

Moderate

High 4

Very high

Total 1.20 0.50

2 5 2

1.50 0.30 3.50

The industries in which the no of buyers are high the bargaining power will be higher. The players can demand the goods at lower price from the suppliers. In retail industry has a good no of players so the barging power of the buyer is good. Switching cost:Buyers who can readily switch brands or source from several sellers have more negotiating leverage than buyers who have high switching costs. When the products of rival sellers are virtually identical it is relatively easy for buyers to switch from seller to seller at little or no cost and anxious sellers may be willing to make concessions to win or retain a buyers business. Suppliers threat of forward integration:This criteria a gives the ability of the suppliers of the forward integration and the supplier can increase the supply chain towards the end user. In this industry the suppliers threat of forward integration is low which makes the buyers bargaining power low. This criterion makes the industry more attractive for the players.

62

Buyers threat of backward integration:Buyers threat of backward integration means the buyer will produce the thing, if the buyers backward integration threat is higher than the competitive pressure will be higher. In retail industry the threat if buyers backward integration is low so the competitive pressure will be low which makes the industry attractive? The bargaining power of buyers in for organized retailing is low. The main reasons for this are as follows. Organized retailing is based on policies and a on a systematic based methods. Hence the prices, the quality, service etc. provided are the same for all its customers. There fore at most of the retail an outlet does not provide the facility of bargaining or discounts unless mentioned by the company which is the supplier. It is a mentality of customers that they do not bargain at organized retail outlets this is because they feel ashamed to do so or they do not consider it appropriate to bargain at such outlets. They feel that the priced charged by the retailers is in accordance with the products attributes and the services rendered. In outlets like BIG BAZAAR and STAR BAZAAR the items are already sold at huge discounted prices and hence the customer feels no need to bargain for more. They are aware of the prevailing market prices and the discounts offered by such stores. Customers readily accept that the prices paid by them for the goods are the best buy prices and they are happy with the price paid for the goods

Forces
Rivalry among the competing sellers Potential entry of new competitors Substitutes products Bargaining power of suppliers Bargaining power of buyers Total

Weight 0.20 0.20 0.20 0.20 0.20 1.00

Attractiveness points 3.40 2.85 2.60 3.70 3.50 16.05

Total 0.68 0.57 0.52 0.74 0.70 3.21

63

9. BCGs Strategic Matrix

According to Robert M. Grant Contemporary Strategy Analysis The Boston Consulting Groups Strategic Environments Matrix reverses this direction: it is the nature of competitive advantage in an industry that determines strategies that are viable, which in turn determine the structure of the industry.

Many Sources Of Advantage Few

FRAGMENTED (Jewelry)

SPECIALIZATION (Books & Furniture)

STALEMATE VOLUME (Convenience Store) (Supermarket) Small Big Size of Advantage

Two variables are used: Sources of advantage: this depends on the complexity of the industry in terms of the sources of competitive advantage. Complex product offer more scope for differentiation than do commodities. Among commodities, the potential for competitive advantage depends on whether there are opportunities for cost advantage. The size of potential competitive advantage. How big is the advantage available to the industry leader? This may derive from economies of scale, or brand leadership, or controlling the industry standard.

The two variables define four industry types: 1. Volume businesses are those where the sources of advantage are few, but the size of advantage (typically resulting from scale economies) is considerable. 2. Stalemate businesses are those where the sources of advantage are few and the size of potential advantage is small. The result is highly competitive industry where firms compete with similar strategies, but is none is able to obtain significant advantage. Once a business is embroiled in a stalemate industry, survival and profitability require operational efficiency, low administrative overheads and a cost conscious corporate culture.

64

3. Fragmented businesses are those where the sources of competitive advantage are many, but the size of advantage is small. They typically supply differentiated product where brand loyalty is low, technology well diffused and scale economies are small. Success factors may include low costs through operational efficiency, focusing on an attractive market segment, responding quickly to change, and establishing novel forms of differentiation. Successful companies tend to be entrepreneurial. Franchising is one of the ways of matching the advantages of size with those of flexibility and decentralization. An alternative strategy is to attempt to transform the business in to a specialization or volume business.

4. Specialization businesses are those where the sources of advantage are many and the size
of the potential advantage is substantial. Specialization business feature varied customer needs, first mover advantages, brand loyalty, scale economies, and few economies of scope (hence, there are no major advantage to firms with a broad market or product scope). Specialization businesses require strategic differentiation-each firm focuses on a particular approach to product design, innovation, or brand

65

10. Key Success Factors of Retail Industry

Here we develop more comprehensive analysis of competitive advantage. Our goal is to identify those factors within the firms market environment that determine its ability to survive and prosper-its Key Success Factors.

Prerequisites for Success What Do Customers Want? How does the firm survive the competition?

Low prices Convenient location Wide range of products adapted to local preferences Fresh/Quality Produce; Good Service; ease of parking; pleasant ambience

Markets localized Intensity of Price competition depends on number and proximity of competitors Bargaining power a critical determinant of cost of bought-in goods

Key Success Factors Low cost operation requires operational efficiency, scale efficient stores, large aggregate purchases to maximize buying power, low wage costs Differentiation requires large stores {to allow wide product range}, convenient location, easy parking

66

The approach to identify key success factors is straightforward and common sense. To survive and prosper in an industry, a firm meets two criteria: first, it must supply what customers wants to buy; second, it must survive competition. In answer the question of what do customers want? We need to identify who its customers are, what are their needs, and how they choose between competing offerings. If the consumers choice of supermarkets is based primarily on which charges the lowest prices, convenient location, wide range of product adapted to local preferences, and fresh quality produce; good service; ease of parking; pleasant ambience? In answer the question of How does the firm survive competition? In this intensely competitive market, survival requires-strong financial position and market localized, intensity of price competition depends on number and proximity of competitors, and bargaining power a critical determinant of cost of bought-in goods. A basic framework for identifying key success factors in retail industry is low-cost operation requires operational efficiency, scale efficient stores, large aggregate purchases to maximize buying power, low wage costs, and differentiation requires large stores(To allow wide product range), convenient location, easy parking.

67

11. Key Facts

The retail sector in India is witnessing a huge revamping exercise as traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike introducing the Indian consumer to a shopping experience like never before.

The key facts regarding Indian Economy and Indian retail Industry are as follows: India vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. The organized retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, strong income growth and favorable demographic patterns. Indias GDP growth of the past few years estimated at around 8% per annum. The annual growth of department stores has been estimated at 24 per cent, which is faster than overall retail; and supermarkets have taken an increased share of general food and grocery trade over the last two decades. Disposable incomes remain concentrated in urban areas, and affluent classes and the growing number of double-income households. However, the report reveals that the sheer size and potential of the rural segment has been underestimated. Rated the fifth most attractive emerging retail market, India is being seen as a potential goldmine. It has been ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney. The list was developed as a response to requests from retail chains facing saturated demand in most western markets. AT Kearney has estimated Indias total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 per cent over the next five years. With the organized retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010. The share of modern retail is likely to grow from its current 3 per cent to 15-20 percent over the next decade, analysts feel. No wonder a heavyweight like the Reliance group is planning to do a Wal-Mart in India. Hidden consumption power in the low-income rural areas offers opportunities for organized retailers. Currently according to estimates, only 4% of the retail sector is above 500 esq. and just 2% is in the organized sector. Where as in developed countries, organized retailing makes for over 70 per cent of the total business. Even in neighboring China the figure is a healthy 20 per cent. The Economic Survey 2004-05, said FDI in retail trade can not only organize a significant part of the largely unorganized domestic retailing, but also invite established global retail brands into the Indian market, thereby creating greater outlets for outsourcing and marketing Indian products.

68

AT Kearney study placed India as the number one destination for FDI in retail ahead of Russia, which topped the survey in 2003. Ukraine, China and Slovenia were the other countries in the top 5. . A study by CII and PricewaterhouseCoopers (PwC), titled The Rising Elephant : Benefits ssof Modern Trade to Indian Economy, states that the development of organized retail will generate an additional eight million jobs, directly and indirectly. According to ASSOCHAM, the retail sector will create 50,000 jobs a year in the coming five years.

69

12. Major Findings and Contribution

Indian Organized Retail Industry is like Mine. But From this we have chosen the Diamonds, which means our findings are From the Environmental Analysis we find that The government frames the policy of foreign direct investment up to 51% in single brand retailing. In Demographic factor analysis we find that India has highest young generation population in the world. In Economic retail factor analysis we find that Indian Retail Industry grow 2530% annually. Indian Retail Industry Contributes 10% of the GDP Per Capita Income has increase so it affects people purchasing power. o Retailers are promoting private labels for getting higher profit margins. o From the BCG Strategic Environment Matrix analysis we find that in volume type industry consist of super market. o In Stalemate type of industry consists of convince store. o In Fragmented type of industry consists of jewellary and apparel retail o In specialization types consist of book and furniture retail o From the porter 5 forces analysis it indicate that industry attractiveness is high which is find from Rivalry among existing competition is moderate to high which is 3.40 Potential entry of new entrants is below the moderate it is 2.85 Substitute product availability force is moderate to low 2.60 Supplier bargaining power is moderate to high which is 3.70 Buyers bargaining power is moderate to high which is 3.50 o From the industry attractiveness key success factor analysis we have find the retail industrys key success factor are low cost operation, scale efficiency stores, maximize buying power, low wages o In differentiation requires large stores(which is allow wide product range) and Convenient location ease parking

Limitation
The following are the Research limitations: The research was limited with time and resources A generalized assumption about the entire organized sector has been made, based on the data and information available of some companies and cities. All facts and figures are totally dependent on the surveys made by KSA Technopak, AT Kearney and KPMG. On the lack of availability of data we, on the base of suggestions by academicians and professionals have made some assumptions.

70

Due to limitations of time and source we have restricted the research, covering only, the organized sector and there by including only the leading segments like food, apparel, grocery etc.

------Future of Indian Organized Retailing

The organized retail industry in India is expected to grow 25-30 per cent annually and would triple in size from Rs35,000 crore in 2004-05 to Rs109,000 crore ($24 billion) by 2010. However CRISIL has cautioned that organized retail sector will slow down to single digit growth after five or six years unless the industry brings in an innovative ''India specific'' approach through expansion of the network. Organized retail to grow to such proportions an investment of approximately Rs3,100 crore per year was required in the country. The food and grocery were the fastestgrowing segments in the country, with revenues expected to grow by five times over the next five years. The slow down in sales' volume after five years would result mainly from saturation of demand in major metros, currently witnessing an annual growth rate of 25-30 per cent due to surplus income of the young generation. Metros and mini-metros offer maximum scope for growth with six times more in sales volume, as compared to tier-II cities. Hence, it is not necessary to expand the hypermarket super mall to mini-metros and tier-II cities in the immediate future. FDI in retail was necessary to sustain the investment-linked growth but felt that the approval of FDI from the authorities would come by the end of 2006 as in the meantime this would allow domestic players to improve their position in terms of business expansion and financial growth. Though food and grocery stores account for the largest share of retail spent by the consumer at about 76 per cent, and nearly 99 per cent of this market is in the unorganized sector. But according to this may change in the next few years as it is estimated that food and grocery revenue in the organized retailing market would multiply five times, taking the organized shares of the market to 30 per cent. The organized retail sector has maintained its unrelenting growth pace, with the top five retail majors notching up a combined net sales growth rate in excess of 50% for the second successive year. With Reliance Fresh having started its operations and Bharti and Aditya Birla group soon to join the fray, the retail mania is clearly continuing unabated. A GDP growth of around 8% and a spate of festivals during the quarter have helped the case for the retail sector. The value retailing segment now accounts for around 72% of the companys turnover. However, the growth has come largely from new outlets as the like-to-like (LTL) growth rate stands at 25%. On the other hand, the lifestyle segment reported an LTL store growth

71

rate of 33%, a vast improvement over a growth rate of 17% reported for the quarter ended. The fast-paced expansion, however, seems to have taken a toll on the operating and profit margins for the company, particularly for the lifestyle segment. While the PBIT margin remained constant for the value retailing segment, the lifestyle segment saw a drop of one percentage point from 14.7% to 13.7%. The overall operating margin fell to 6.9%, a drop of 70 basis points from last year, on the back of 144% rise in staff costs. Shoppers Stop clocked the lowest net sales growth rate (34%) among the retail majors. However, the company backed it up by an impressive 81% growth in net profits owing to a huge improvement in its operational efficiency. The company took up its LTL growth rate to 25% from 17% last year, with a volume growth of 14%. It notched a double-digit growth in operational parameters like sales per sq ft and average transaction size. A loyal customer base accounting for 62% of revenues and a private label mix of 22% also has helped improve its profitability. From 95 currently operational shopping centers with approximately 22-million square feet space, India tohave over 375 shopping centers/ Malls covering over 90 million square feet by 2007 end. 50 hypermarkets, 305 large department stores, 1500 supermarkets and over 10,000 new outlets under construction.

72

13. Conclusion
The Indian retail sector is largely traditional, but stores in modern format are emerging. The contribution of organized retailing in the share of retail sales in India is currently very small. Based on an analysis of retail developments in countries such as Thailand, Brazil and Greece, and some experience in India, it is possible to conclude that modernization of retailing in India would be influenced by some important factors. These factors include economic development; improvements in civic situation; changes in consumer needs, attitudes and behavior; changes in government policies; increased investment in retailing and rise in the power of organized retail. The development of modern retail will have several implications for managerial practice in manufacturing firms. Firms will need to proactively review their sales structures, brand activities, logistics policy and price structure to cope with pressures from powerful retailers. New avenues have been developing in he organized retail sector by way of introduction of new business methods, tie ups and using advanced technologies to reduce the costs and at the same time to deliver the best products and services to the customers, on time. Most of the organized retailers are adopting the trail and error method and learning form mistakes to develop an ultimate strategy that could make a fortune for them. Organized retailers are adopting the methods used in foreign countries to effectively collect and use this database in order to provide maximum customer satisfaction. Even new methods of finding new or latent opportunities are always under process. The Indian organized retail industry is a very attractive industry with absence of larger players. The organized retail is only 3 % of the total retail industry, which is growing at rate of 25-30% annually. Analysis shows the attractiveness of the industries is high. With the entry of world class players, competitiveness of the industry has been increased.

73

14. BIBIOLOGRAPHY
News Papers Business Standards Economic Times Times of India Financial Times Indian Express

Magazines Business World India Today Business Today Business Week Forbes Time Center for Monitoring Indian Economy Sales & Marketing ICFAI Journal Marketing and Management

Websites www.retailbiz.com/retailhistory www.about.com/retail www.piramyd.com www.futurebiz.com www.rpg.com/retail

74

www.fnbnews.com/retailnews/html www.rediff.com/news/retail www.indiainfoline.com/retail/news/ www.appliance magazine.com www.retailyatra.com http://business.mapsofindia.com/india-retailindustry/ http://www.ibef.org/industry/retail.aspx http://www.economywatch.com/business-and-economy/indian-retailindustry.html http://cii.in/menu_content.php?menu_id=245 http://www.indiainbusiness.nic.in/industry-infrastructure/servicesectors/retailing.htm Research Article AT Kearneys Research on Emerging of Organized Indian Retail Industry KPMG Research on Retail Opportunities KSA Technopack research on Booming Retail Industry

75

76