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Assignment 1

Submitted to : Ms. Deepika varshney

Submitted by: Nishtha seth 11280303912 MBA(E)B IV SEM

1.

Distinguish between the retail mix of convenience store, specialty store and discount store. Use suitable examples to illustrate your answer.

Ans.1. Specialty Store-Specialty store carry a limited number of product within one or few lines of goods and services. They are named because they specialize in one type of product. Such as apparel and complementary merchandise. Specialty store utilizes a market segmentation strategy rather than typical mass marketing strategy when trying to attract customers. Specialty retailers tend to specialize in apparel, shoes, toys, books, auto supplies, jewelry and sporting goods. In recent years, specialty stores have seen the emergence of the category killer. Category killers (sometimes called power retailer or category specialty) are generally discount specialty stores that offer a deep assortment of merchandise in a particular category. Convenience Stores As the name suggests, convenience stores are located in areas that are easily accessible to customers. Convenience store carry limited assortment of products and are housed in small facilities. The major seller in convenience stores is convenience goods and non alcoholic beverages. The strategy of convenience stores employ is fast shopping, consumer can go into a convenience stores pick out what they want, and check out relatively short time. Due to the high sales, convenience store receives products almost daily. Because convenience store dont have the luxury of high volume purchase. Food Retailers Full line Discount Stores It conveys the image of a high volume, low cost, fast turnover outlet selling a broad merchandise assortment for less than conventional prices. It is more to carry the range of products line expected at department stores, including consumer electronics, furniture and appliances. There is also greater emphasis on such items as auto accessories, gardening equipment, and house wares. A customer service is not provided within stores but at centralized area. Products are sold via self service. Less fashion sensitive merchandise is carried.

2. Discuss the benefits of organised retail to Indian economic scenario?

Ans2 What is retailing

Retailing is a distribution channel function, where one organisation buys products from supplying firms or manufactures products themselves, and then sells these directly to consumers.

In majority of retail situations, the organisation, from whom a consumer buys, is a reseller of products obtained from others, and not the product manufacturer. However, some manufacturers do operate their own retail outlets in a corporate channel arrangement.

Retailers offer many benefits to suppliers and customers as resellers. Consumers, for instance, are able to purchase small quantities of an assortment of products at a reasonably affordable price. Similarly, suppliers get an opportunity to reach their target market, build product demand through retail promotions, and provide consumer feedback to the product marketer. The organised retail segment in India is expected to witness higher growth going forward due to the FDI clearances in retailing, the changing consumer needs, rise in young (15-49 years) and working women population, and increase in nuclear families among others. It is estimated that the young population is likely to constitute 53.0% of the total population in 2020 and 46.5% of the population in 2050 - much higher than countries like the US, the UK, Germany, Chinaetc. Indias demographic scenario will turn to be more favourable going forward due to the dominant young population, which will most certainly drive retail sales growth, especially in the organised retail segment, and will boost the segment that is already on a high growth trajectory. Even though the penetration of the organised retailers is far lesser in India than in other developed countries, the first-mover advantage that the retail players enjoy will also attribute to the sectors growth Evolution of organised retail

The share of organised retail in developed countries is much higher than developing countries like India. In 20063, the share of organised retail in the US was around 85%, in Japan it was 66%, in the UK it was 80%, while in developing countries like India, China and Russia it was 6%, 20% and 33%, respectively. The concept of organised retail had occurred much later in developing economies than the developed economies. Modern day retail came into existence in three successive waves. The first wave took place in the early to mid-1990s in South America, East Asia excluding China, North Central Europe and South Africa. The second wave of

organised retail occurred during mid-to-late 1990s in Mexico, Central America, South-east Asia and South Central Europe. The third wave of organised retail boom started in the late 1990s and early 2000 in some parts of Africa, Central and South America, South-east Asia, China, India and Russia and continues to grow at a rapid pace.

Retail in India: Industry Structure

The retail industry in India is highly fragmented and unorganised. Earlier on retailing in India was mostly done through family-owned small stores with limited merchandise, popularly known as kirana or momand-pop stores. In those times, food and grocery were shopped from clusters of open kiosks and stalls called mandis. There were also occasional fairs and festivals where people went to shop. In the twentieth century, infusion of western concepts brought about changes in the structure of retailing. There were some traditional retail chains like Nilgiri and Akbarallys that were set up on the lines of western retail concepts of supermarkets. The government set up the public distribution system (PDS) outlets to sell subsidised food and started the Khadi Gram Udyog to sell clothes made of cotton fabric. During this time, high streets like Linking Road and Fashion Street emerged in Mumbai. Some manufacturers like Bombay Dyeing started forward integrating to sell their own merchandise. Shopping centres or complex came into existence, which was a primitive form of todays malls.

Since liberalisation in early 1990s, many Indian players like Shoppers Stop, Pantaloon Retail India Ltd (PRIL), Spencer Retail ventured into the organised retail sector and have grown by many folds since then. These were the pioneers of the organised Indian retail formats. With the opening up of foreign direct investment in single-brand retail and cashand-carry formats, a new chapter unfolded in the retail space. Many single-brand retailers like Louis Vuitton and Tommy Hilfiger took advantage of this opportunity. The cash-and-carry format has proved to be an entry route for global multichannel retailing giants like Metro, Wal-Mart and Tesco.

Booming Indian economy spurs consumption

The Indian economy posted a remarkable CAGR growth of 8.9% during FY04-FY08, which increased the per capita income and in turn, the disposable income of a large section of the population. Growth in the retail trade depends on the fundamentals of an economy. The Indian economy grew at a robust rate over the last five years, riding high on the high growth in the service sector (10.5%) and the manufacturing sector (9.4%) as compared with 7.4% and 4.1% during FY99-FY03. The rise in per capita

income and the resultant rise in disposable income stimulated consumption during this five-year period, thereby resulting in a spurt in retail trade. Furthermore, according to the Mckinsey Global Institute (MGI), the average real household disposable income is likely to grow by 5.3% during 2005-2025 and reach Rs 318,896 per annum as compared with 3.6% in the previous 20 years, which indicates the huge potential for the retail sector in India.

Size of the Indian retail industry

In 2007, the total Indian retail industry was valued at Rs 13,300 billion (estimate), and the organised segment constituted 5.9% of the value at Rs 783 billion. In the segment, the clothing and accessories sales had a majority share of 38.1% followed by the food and grocery segment at 11.5% and electronics segment at 9.1%. The organised retail industry grew at a CAGR of 33% during 2004-2007. Even though the organised retail segment has a minuscule share in the total industry, it has enormous potential considering the rising urbanisation, the efficient supply-chain, the readily-available retail space, and modern technology, which help in reducing consumer prices to a great extent. Furthermore, with the entry of big foreign players, the Indian organised retail market has become more competitive in terms of implementing newer business models on the operational format, and pricing, and in terms of efficiency. The organised retail sector will largely benefit in terms of productivity and growth if sectors like agriculture, food processing, and textile are encouraged further. The above-mentioned sectors would receive a remarkable boost if they would supply to big Indian and foreign retail players, which will ensure their growth in tandem with the retail sector. Moreover, the organised retail sector will directly and indirectly improve the countrys employment scenario.

Many Indian retail players have already started purchasing supplies directly from farmers and other suppliers, which has invariably eliminated the supply-chain complexities and large number of intermediaries, and has resultantly lowered prices for consumers. Furthermore, the amendment of the Agriculture Product Marketing Act (APMC) has revamped the farm produce supply chain.

Industry segmentation

Organised retail can be segmented in two ways - segmentation by verticals and by channels. Verticals are segmented on the basis of the type of merchandise offered; similar merchandise can be clubbed together to form a vertical, for instance food and grocery. Channels are the means through which retailers sell their merchandise; for example, store channels of retailing that comprise different formats like hypermarkets, supermarkets and department stores and non-store formats like online retailing, vending and kiosks.

Growth Drivers

Currently, organised retail is in a nascent stage of growth in India as it just has a 5.9% share in the total India retail trade. However, in recent years, organised retailing has been growing at a robust rate due to rise in the number of shopping malls as well as in the number of organised retail formats. The key factors of growth of organised retail in modern India are discussed in the following pages.

Rising disposable income of Indian middle-class The Indian middle-class can be categorised into seekers and strivers, which is the consuming class and the prime target segment for retailers in India. In 2005, these two categories together constituted around 6.4% of total households in India but accounted for 20% of the disposable income. By 2015, the middle class is expected to constitute around 25% of total households and account for 44% of the total disposable income, and by 2025, the respective figures are likely to go up to 46% and 58%. The Indian middle-class population and their growing disposable income levels will drive the future growth of organised retail in India6.

Changing consumer preferences and shopping habits The prime reason for a paradigm shift in the shopping attitude of the Indian consumer is the change in their preferences and tastes. Due to the increasing use of IT and telecom, Indian consumers have become aware of brands and shops for lifestyle and value brands according to the need and occasion. Consumers will continue to drive the growth in the organised retail by expanding the market and compelling retailers to widen their offerings in terms of brands and in terms of variety.

The spending on essential commodities has been steadily falling over the years, whereas the consumption of discretionary products has been growing at a healthy pace. If the composition of PFCE is studied, one can notice that the share of food, beverages and tobacco in the total PFCE has declined from 53.0% in FY90 to 42.2% in FY08. On the other hand, the share of communication, entertainment, personal care consumption has been rising over the years. Changes in lifestyle have brought about a paradigm shift in consumption, which will undoubtedly continue to drive retail growth in segments like beauty, healthcare, telecom, and entertainment. Moreover, the rising reach of media coverage is increasing consumer awareness about products, their prices and services, which is likely to further encourage growth in the organised retail segment.

Changing demographics India is one of the youngest and largest consumer markets in the world with a median age of around 25 years, which is the lowest as compared with other countries. According to estimates, Indias median age would be 28 by 2020. It is expected that over 53% of the population will be under the age of 30 by 2020, which means that the potential for the Indian retail segment will be enormous. Another plus about this population is that they will be more dynamic than the previous generations because their consumption is driven by wants rather than needs. Thus, the organised retailing, which thrives on lifestyle products, is expected to receive a boost because of the young population by 2020. Increase in working population India is the second-largest country in the world in terms of population, and is the largestconsumer markets in the world owing to its favourable demographics. In 2008 Indias working population (in the 15 -49 years age group) constituted around 53% of the population as compared with 48.6% in the UK, 49% in the US, and 53% in Russia. Further, the increase in the number of working women has fuelled the growth in sales of discretionary items. There has been a 20% increase in the number of working women in the last decade. Spurt in urbanisation Historically cities and towns have been the driving force of overall economic and social development. Currently over 335 million people of India reside in cities and towns, which translates to around 30% of the total population7. The rapid growth in urbanisation has facilitated organised retailing in India, and has caused the speedy migration of population into major tier I and tier II cities, which have a significant share in the retail sales of the country.

The urban populations contribution in Indias GDP shot up from 29% in 1951 to 60% in 2001 and is expected to increase to 70% by 20118, as migration to cities and towns grows rapidly in anticipation of higher income opportunities provided by these epicentres. Moreover, the continuous development in urban areas has invariably attracted substantial inflows of capital both from domestic and foreign investments have led to the transition of urban areas. As the Indian organised retail is mainly concentrated in the urban areas, its growth (urban areas) is imperative for the organised retail in the country. Notably, the urban areas are Indias growth centres and they are growing rapidly over the last couple of years as compared to the world average as well countries like Brazil, the US and UK among others. For instance, during 1995-2000, annual urban growth in India was 2.35% as compared to the world average of 2.07%. Furtherance, the annual urban growth in India would touch 2.6% during 2020-25, while globally it would fall consistently to reach 1.6%, China 1.36% from 3.1% during 1995-2000, followed by Brazil to 0.82%9. Though, percentage of urban population to total population in India (29%) is comparatively quite low against the world average (48.6%), as well as countries such as Brazil (84%), China (40%), the US (81%) and Russia (73%), it is however noticeable that total urban population in India was far more than the total population of the entire US in 2005 and by 2025, it is expected that Indias total urban population would constitute around 6.7% of the total world population. This would undeniably emerge as the Indias largest market for organised retail, and therefore the challenge for the retail players to leverage the full potential of flourishing urban areas. Furthermore, due to the rapid infrastructure development in major tier I, II and III cities, many rural inhabitants are attracted to cities, which increase the urban per capita income and in turn offers unbound opportunities for the organised retail segment. Increased globalisation has also played a big role in the development of urban areas.

Rise in MPCE level in urban areas The aggregate urban consumption in India has been growing steadily over the past few years as the economy has been continuously flourishing during this period, owing to a rise in urban population as well as a rapid per capita income growth. In FY05, 56.0% of the urban population was below the MPCE level of Rs 930, while in FY07 the percentage of population under the MPCE level of Rs 930 decreased to 46.1%.

The average MPCE for the urban population in FY07 was Rs 1,312 up from Rs 1,105 in FY05, on the other hand, the average MPCE for rural population in FY07 was Rs 695 up from Rs 579 in FY0710. The NSS report clearly suggested that the consumption pattern in urban areas differed from the rural areas. While the food items constituted 52.2% of the rural areas consumption in FY07 and the non -food items accounted for the remaining share, in the urban areas, the share of food items in consumption was 39.4% and the non-food items accounted for the rest. Organised retail concentration in tier II and III cities Initially the retail revolution began in the big tier I cities in India; however, as tier I cities are relatively saturated now, retailers, especially value retailers, are finding their way to smaller tier II and tier III cities as well. The changing landscape of the Indian retail segment and the increasing competition has also forced retailers to tap growth opportunities in tier II and III cities in India. Internet drives awareness and online purchases There has been a substantial increase in the number of Indians who use the Internet and a concomitant increase in the number of online purchases. Indians have started using the Internet not only for increasing awareness but also to shop online, which has opened a whole new channel of retailing in the Indian retail scenario. Online retailing offers consumers the convenience of ordering merchandise to their doorstep. Recently, Future Group, which owns Pantaloon, has initiated a measure to capitalise on the online opportunity through futurebazaar.com. A similar venture flipkart.com is also proving the new channel to be highly viable, especially since it eliminates the biggest cost of the physical store. Easy credit availability a boon for organised retail The higher penetration of credit cards in India has also boosted the growth of the organised retail sector; in fact, the young populations increasing fancy for plastic money has further fuelled their purchasing power. Even though the organised retail sector is at a nascent stage (constituted 5.9% of the total retail industry in 2007), it is growing at a rapid pace. Moreover, the spurt in issuance of credit cards and loans by both Indian as well as foreign banks has further boosted the segments growth. According to the RBI, as on FY09, the total number of outstanding credit and debit cards in India was 24.7 million and 137.4 million respectively. Retail investment

Investments in the retail sector have improved since FDI has been allowed in single-brand and cash-andcarry formats. According to the Technopak estimates, investments in the organised retail will touch US$ 35 billion in the next five years or so. Investments allow organised players in retail to expand at a very high rate. All key retailers in India have expansion plans over the next 3-4 years; for instance, Pantaloon has an ambitious expansion plan to take its retail space up to 30 million square feet by 2011. Likewise, Vishal Retail is expected to take its total store count to 500 with an estimated retail space of around 10 million square feet by 2011. Availability of quality real estate According to industry sources, mall space in India has grown from a meagre 1.0 million square feet in 2002 to about 57.3 million square feet by the end of 2008; tier I cities are expected to account for around 73% of the mall space and the rest is likely to be equally divided between tier II and tier III cities.

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