RETAIL MAKETING IN INDIA

KEY ISSUES AND CHALLENGES

Introduction:
India retailing boom has acquired further momentum, dynamism and vibrancy with international players experimenting in the Indian market and the countrys existing giants taking bold innovative step to woo the consumers. The next few years are likely to witness rapid growth in the organized retailing sector with several leading international players establishing their presence in India by adjusting their formats to suit local tastes and buying behavior. At the same time, the domestic players have stepped up their defenses and are striving to gain an edge over global players by using their knowledge of local markets. According to Techopak, $12 bn (Rs. 54,000 cr) is likely to be invested in India in organized retail over the next five years. Clearly, the next wave of the retail boom is upon us. Retailing, the biggest private-sector industry in world, is o n e o f t h e m o v e r s o f a n e c o n o m y . O n e o f t h e s i gn i f i c a n t d r i v e r s f o r f o r m a l real estate and urban development, it account for 10% of the GDP of most developed countries. Globally, retailing is the big business- worth a staggering $6.6 trillion according to recent report published by Mc Kinsey & Co. - and much of it is accounted for by organized retailing. I n d i a n R e t a i l S e c t o r - S o me e s t i ma t e s A T K a r n e y s e s t i ma t e s The CII-A T Kearney Report Retail in India: Getting organized to drive growth estimate the total Indian retail market size at $278 bn in 2004 and $321 bn in 2006; and projects the same to $368 bn in 2008 and $421 bn in 2010, considering an annual growth rate of 7%. Category wise retail market s h a r e s a r e f o o d a n d g r o c e r y ( 7 5 %) , c l o t h i n g a n d t e x t i l e ( 7 % ) , c o n s u m e r durable (4.1%), home dcor and furnishing (2.9%) and beauty care (2.1%) E r n s t & Y o u n g s E s t i ma t e s The great Indian Retail Story by Ernst & Youngs (2006) presents a s l i g h t l y d i f f e r e n t s e t o f f i g u r e s , t h o u gh b r o a d l y w i t h i n t h e s a m e r a n g e a s in the report by AT Karney and Technopak. Ernst Young reports that the total private consumption in India during 2003-04 amounted to $230 BN. T e c h n o P a k E s t i ma t e

Technopak, in its Retail Outlook of October 2007 reports that the total Indian retail market will grow from $336 bn in 2006 to $590 bn in 2011, w h i c h t r a n s l a t e t o a n a n n u a l g r o w t h r a t e o f c l o s e t o 12 % . Indian Retail Evolution David Gilbert has defined retail as any business that directs its marketing efforts towards satisfying the final consumer based upon the organization of selling goods and services as a means of distribution The word Retail is derived from the French word retailer w h i c h i m p l i e s t o c u t a g a i n o r t o b r e a k b u l k . Th i s c a n b e a p p l i e d t o t h e function carried out by retailers which include assembling, sorting, providing credits facilities etc. thus retailing is a set of business activities which add value to product and services sold to consumers for their personal and family use. Retailing g in India can be traced back to the weekly haats or gatherings at the market place, where vendors put their offering on sales. The market also saw the emergence of local mom and pop stores, i.e., the c o m m o n K i r a n a s t o r e s s e l l i n g m u l t i p l e g o o d s w i t h c o n v en i e n t a v a i l a b i l i t y . Kirana stores have traditionally dominated the Indian retail market for a long time. Bulk of the retail stores in India are small familyrun businesses utilizing predominantly household labor. The inherent advantage of the unorganized retail sector include low-cost structure, negligible real estate cost, economical labor cost, low tax liabilities and familiarity with shop loyal customer. Organized retail began to make its mark in India in the 1970s w h en s h o p s l i k e R a y m o n d s , N a l l i s a n d B a t a w e r e i n t h e m a r k e t t h r o u g h their exclusive stores or franchisees. The early 1980s witnessed the emergence of organized retail stores such as Akbarallys in Mumbai and Spencers in Chennai. These stores later evolved into multichain outlets and were the first to establish the concept of organized retail in India. But they lacked the requisite infrastructural framework and support. During 1990s, the wave of liberalization, privatization and globalization ushered in new retailing formats, modern techniques and e x c l u s i v e r e t a i l o u t l e t s l i k e S h o p p e r s S t o p ( 19 9 1 ) , P a n t a l o o n ( 1 9 9 7 ) a n d others. Further transformation was witnessed during the early years of 21 st century, with the opening of numerous supermarkets, department stores, chain stores and maals across the country and the emergence of hyper markets and big discount stores. The affluent and the upper middle class enjoyed shopping at these retail stores, given the improved facilities that they offered such as shopping ambience, friendly layout and a single point of purchase for a wide variety of goods. The organized retail sector is still largely under developed in India, not only by the standards of the industrialized nations, but also in comparison with emerging markets in Asia.

Challenges Opportunities generate their own challenges and the retail industry is no exception to this rule. Oversupply, fierce competition, high rentals, poor infrastructure and shoddy marketing are just some of the problems. Store Positioning In the past, some of the big name like Nanz that hit the scene died a natural death, either because they entered the market much ahead of their time, or maybe, thy re incorrectly targeted at the upper end of the market and were not meant for the masses. H u m a n R e s o u r c e P r o b l e ms According to the retail Association of India (RAI), the total employe base in the organized retail sector is currently one million, while personnel requirement at the front end alone is 1.25 million, which is expected to go u p t o 3 . 2 5 w i t h i n t h e n ex t f e w y e a r s . R e l i a n c e a l o n e i s p l a n n i n g t o r e c r u i t 0.5 million, while industry estimates predict that only 1o 1. Million trained employable people will be available. So, there exists a huge gap between required and available manpower. Real Estates Issues The retail boom currently being witnessed in India is having a significant impact on the commercial real-estate sector. In most cities, it is difficult to find suitable properties in central and down ton locations for large- for-mat s t o r e s . Th i s i s p r i m a r i l y b e c a u s e p r i v a t e h o l d i n gs a r e f r a g m e n t e d a n d a u c t i o n i n g o f g o v e r n m e n t - o w n e d b i g v a c a n t p l o t s i s r a r e . Th i s h a s l e d t o a shift towards the suburbs of metropolitan cities. Shopping malls have come up in Gurgaon and Noida near Delhi and in Bandra- Kurla Complex and Navi Mumbai near Mumbai .ther are a shortage of retail space in central Locations and rents are also high for w h a t i s a v a i l a b l e . Th e r e i s s h o r t a g e o f r e t a i l s p a c e i n c e n t r a l l o c a t i o n s a n d rents are also high for what is available. Future Prospects: I m p a c t o f f o r e i g n D i r e c t I n v e s t me n t ( F D I ) a n d R e g u l a t o r y f r a me w o r k Although FDI has become an important tool to revive sluggish economies, India has always been skeptical about opening up various business sectors for foreign investment.FDI is known for generating healthy competition and the entry of global retailers has contributed to rapid growth in retail b u s i n e s s i n m a n y d e v e l o p i n g c o u n t r i e s . Th e C e n t r a l G o v e r n m e n t s m o v e t o

allow FDI upto 51% in the cash and carry business(wholesale), in spite of stiff resistance from the left, has made the sector attractive for global players as they can have more control through joint ventures than in franchise tie ups.The global giant Wal-Mart is entering India through a joint venture with Bharti Enterprises. Allowing FIIs to invest in unlisted stocks will generate additional funding option for domestic retailers, encouraging them to come up with more innovative service models. Industry Potential A study by McKinsey points out that the Indian market for consumer goods is expected to reach $400 bn by 2010, making it one of the five largest markets in the world. Liberalization of the economy in the 1990 and the entry of large players in the retail business have brought the retail business into spotlight. Big players and national retail chains are changing the rules of the game in spite of their meager share in the overall retail trade. E m p l o y me n t a n d E a r n i n g P o t e n t i a l f o r E mp l o y e e s Retailing is considered to be the largest sector of the economy after agriculture in terms of employment potential. Reliance alone expects to generate direct employment for around half a million people. Retailing will a l s o t h r o w u p o p en i n g s i n v i s u a l m e r c h a n d i s i n g, s u p p l y c h a i n m a n a g e m e n t , customer service and in many other fields. Today, retailing generates jobs for roughly 15% of employable Indian adults. Emergence of New Retail Formats According to a survey conducted by the Federation of Commerce and Industry (FICCI), the Indian retail sector will undergo a sea change in the next 10 years. All the key players will operate at least three to four formats allowing them to utilize their brand value across segments and profiles of customers. The survey also predicts that between the manufacturer and the retailer, the balance of power will shift towards the retailer, and while large retailers would enjoy greater advantage, the small players will also continue to thrive on the basis of personal relationships with customers and convenient location. New retail formats and combinations are expected to c o n t i n u a l l y e m e r g e . B a n k s h a v e o p en e d u p b r a n c h e s i n s u p e r m a r k e t s . B o o k corners are finding a place in coffee shops. Petrol pumps now include convenience stores and ATMs, and hypermarkets have play zones for kids. In India, with a top-line of about Rs.400 cr, Kishore Biyanis Future Group is currently the largest player in the Indian retail market. The g r o u p h a s t h r e e h i gh l y s u c c e s s f u l r e t a i l f o r m a t s : t h e B i g B a z a a r hypermarket; Food Bazaar- which straddles the food and grocery business;

and the original pantaloons apparel stores. It also operates malls in various cities going by the name Central.

Entry of the Corporate Sector Over the last decade, a number of large business groups such as Tatas, RPG, Rahejas and Piramals have set up stores/malls, built businesses in retail and have chalked out further plans for expansion. Reliance is the most ambitious entrant into the retail m a r k e t w i t h a p l a n n ed i n v e s t m e n t o f R s . 2 5 , 0 0 0 c r , s p r e a d o v e r 1 , 5 0 0 towns and cities across the country. No. Of stores/Retail Space Nature of Stores (Sq.ft. /No. of cities covered) Pantaloon Retail Pantaloon 19/6 lakh/13 Apparel Big Bazaar E-zone Central Mall 30/13 lakh/18 2/30,000/2 3/5 lakh/3 Hyper market Consumer elect Stand alone mall Expansion Plans To add 21 stores Expand to 80 store Expand to 40stores Add to a dozen

K.Rahejas Group Shoppers Stop Food world Cross world RPG Group Spencers Supermarket Music World Spencers daily Godrej Group Godrej Aadhaar 23/57500/8 Rural retailer Add 1000 3/35000/3 Super market 100 stores in total 19/9.5 lakh/10 49/1.75 lakh /3 31/1.5 lakh/9 Departmental Grocery & Foods Books Expand to 42stores Grow to 39 stores

2 6 0/ 8 5 0 0 / 4 4 M u s i c 52/2.15 lakh/N.A Gro. & Foods

Natures Basket

4/8000/1

Fruits &veg.

Mall Revolution The retailing business has witnessed huge growth due to the emergence of supermarkets as well as centrally air conditioned shopping malls. In 2001 there were only three major shopping malls in India, i.e., Ansal plaza in New Delhi, Cross Roads in Mumbai and Spencers Plaza in Chennai. As of end-2007, there are 179 operational malls across the country, with a total area of 47.4 million sq ft. T h e M a l l s i n I n d i a 2 0 0 7 s t u d y b r o u gh t o u t b y I M A G E S F & R R e s e a r c h i n association with the India Retail Forum, projects that India will have 412 malls by 2010 with a total retail space of 205 million sq ft. by 2015, it is expected that there would be around 715 operating malls with a total area of 350 million sq ft. Much of the additional development between 2010 and 2 0 1 5 i s e x p e c t e d t o h a p p en i n t i e r - 2 n d a n d t i e r - 3 r d c i t i e s . Emergence of Rural Markets The total size of the rural markets for FMCG products is Rs. 41,550 cr w h en c o m p a r e d t o R s . 3 7 , 1 3 0 c r o f t h e u r b a n m a r k e t . T h e r u r a l m i d d l e c l a s s i s o n a s t e a d y r i s e . T h e m i d d l e t o h i g h i n c o m e h o u s eh o l d s i n r u r a l

India currently from 17% of the total rural population, and are growing at 7% annually. Technological Advantage Technology is becoming critical as a competitive tool. Retailers are using computers to generate better forecasts, control inventory costs and order electronically from suppliers. Information technology has also proved beneficial in merchandise planning and management, internal store operation, billing and customer relationship management. Worldwide retailers are using various technologies, including biometrics, various p o i n t o f s a l e s o l u t i o n s , R F I D t a g s a n d e - p a y m en t s . t h e I n d i a n m a r k e t i s a q u i c k a d a p t e r , a l t h o u gh i t w i l l t a k e s o m e t i m e f o r o u r i n d u s t r y t o g o r e a l l y hi-tech. For implementing world class solutions like RFID, intelligent shelves and Kiosks, the major obstacle is cost. Small cities to witness Retail Boom Small town India is finally awake from its deep slumber and has started making its mark on the economic life of the country. A TechnoPak study has predicted that tier-2 cities, with 0.5 to 1.0 million population will witness retailing linked real estate development to the tune of 100sq ft.The s m a l l t o w n s a r e c h a n gi n g w i t h s h o p s b e c o m i n g m o d e r n i z e d , e m e r g e n c e o f new restaurants with wider cuisines, expansion of petrol pumps, opening up of three multiplexes and launching of well-structured attractive malls. In a research on affluent customers across big metros and small metros concluded that small town customers were in step, and at sometimes a step ahead of metro consumers. Compared to their metro counterparts, more consumer households in small towns owned second homes (19% compared to 13% in the metros), laser discs (27% to 22%), branded readymade garments (45% to 42%), and four-wheelers (92% to 83%). Critical Success Factors for Retailers The following are the critical success factors for retailers: Maintaining low cost of operations Investing in appropriate and cost effective technology Focus on customer service and loyalty Building a reliable supply chain and logistics systems Making adequate capital investments Effective positioning of the retail outlets Efficient human resource training and retention Creating and nurturing private label brands

Conclusion

More exciting times are in store for Indian shoppers across all income and age groups, as the future will witness tremendous changes in the retailing scenario in terms of quantity, scale and variety. Retail marketing efforts have to keep pace by way of improved advertising, promotions and campaigns to attract customers, building loyalty by identifying regular s h o p p e r s a n d o f f e r i n g b e n e f i t s t o t h e m , e f f i c i e n t m a n a g e m e n t o f h i gh v a l u e c u s t o m e r s a n d b y m o n i t o r i n g c u s t o m e r s c h a n gi n g n e e d s c o n s t a n t l y . Organized retail in India is at a take off stage. It has emerged as one of the most dynamic and fast paced sectors with several reputed players entering the market. However, on account of the heavy initial investments, break even is difficult to achieve and many of these players are yet to achieve profitability. However, the future as anticipated by various recognized research firms appears promising. The market is growing; there are favorable government policies and emerging technologies to facilitate efficient operations. Retailers who understand their customers and who know how to attract and retain them, will be able to leverage these opportunities and emerge winners.