| Re: internet marketing -
June 21st, 2007
India reached to new heights and has given a way to renewed confidence in Indian industries. India continues to shine with the economy slated to grow at a rate of 7% over the next few years. Economic indicators are positive, which will bond extremely well for the Indian Retail Sector.
e in late 90s by disallowing the retail growth drivers in economy. Now, government is ready to appologise by supporting the Retail And Retailers------by supplying good quality land, by imposing “Vat Tax Structure” to reduce the complexity in workings, by lowering the tax structure, by improving infrastructural facilities, by easing norms of FDI for foreign players to the extent which wouldn’t affect the domestic players and last but not the least by encouraging to have the professional courses on retail management to develop a quality retail market in India.
Corporate Hypo-Rate: -
From Bata To Tata And Birla To Ambani every-body wants a piece in hot pie of retail. As, the organized retail share is very low, which itself offers a huge opportunity for domestic and foreign players, which makes India an attractive destination for retail in the world.
So, these players want to take opportunity before the entrance of foreign giants and want to set their own level playing field, by increasing their share and competency level. All this offers a huge opportunity to retail in India.
Efforts Of Existing Players: -
Once again, the existing players saw the retail bubble’s in sky and also government is showing signs of favorable environment. And this time they don’t want to lose this opportunity, due to which they have started expansion plans much earlier---by grabbing the land for development of malls, warehouses, etc., by adopting modernization in activities of transportation, distribution and overall supply-chain, by increasing the use of IT innovations in supply-chain management system, by improving the amenities in malls and by training employees for providing best services to customers. These are some of efforts or steps taken by existing players to make the environment “Retail Environment”.
Availability of Finance:-
In India, the retail boom is welcomed in a big way, by existing players as well as new-entrants. The future prospects are to increase the share of organized retailing from current 2-3% to 8-10% by 2010, which requires the capital expenditure of over $3 billion. And the money-lenders of the country like------Stock Market, Banks, Financial Institutions, etc. are in favor of providing finance for the future development of the sector.
Tourism Vision: -
India is a land of diverse culture, rich traditions, beaches, mountains, palaces and thousand of places of tourist and religious interest. Due to all such unique selling points (USP) our tourist arrival before 2005 was negligible. But after the efforts of government to increase the tourism arrival last year by launching campaigns like “ATHITHI-DEVO-BAHVA” our tourist arrival number had crossed the mark of 3 million people in 2005. As tourism increases there would be a need to increase the fields of security, health, infrastructure, hotels and shopping experiences i.e. Retailing.
Infrastructure Building: -
To support the retail Boom and Economies Growth good infrastructure is must. Hence, improvement in infrastructure is taking place. The Golden Quadrilateral Project is likely to finish its 2nd phase. Road widening and illegal slum removals schemes are on nationally, which will help the retail to run on Indian Highways.
Nation Of Services: -
After the implementation of LPG Policy Indian Economy is growing like anything, in more specific terms; India started shifting from under-developed-to-developing and now from developing-to-the mark of developed nations. As, economy shifts from developing-to-developed the share of agriculture in GDP decreases (current 19%) vis-a-vis increased in share of services sectors (current 51%) Due to this, robust shift, “India Is Called As An ‘Office Hub’ Of The World”. As retailing is service industry India offers a huge potential for the development of retails sector.
Hence, From Economy To Government, Existing Players To New-Entrants Every-Body Is Glad To Receive “Retail” In India.
SEVEN (P) ILLARS OF RETAIL GROWTH
India’s retail sector is in the early stages of development. It is way behind the development curve when compared with modern economies. India also lags behind other emerging markets in Asia, Eastern Europe and South America where significant progress has been made in the last two decades.
But the story is set to change, in India; retail has been at about 30%. P. a. over the last two years and will accelerate over next five years. The main pillars on which this growth of retailing will build are:-
PEOPLE:
Indians are earning more and spending more. Almost 60m people would be added to the consuming age of 15-54 years by 2010, and this segment would account for almost 60% of the population, one of the highest in the world. Increasing disposable incomes and changing attitudes would also drive consumption demand. NCAER estimates that middle-high and middle-income households would grow at a CAGR of 8% over the next five years. The spending profile is also shifting in favor of out-of-home consumption. Shopping, especially in malls, is still an integral part of family entertainment in India and would gain an increasing share of time and wallet.
PLACE:
The real estate scenario in India has undergone a dramatic change over the last two years. This would get a further fillip with 100% FDI allowed in construction recently, launch of real estate funds and special incentives by local governments. Mall construction is occurring at a frenzied pace. 35-40 operational malls in 2004, occupying around 6m sq ft of retail space would grow to more than 200 malls occupying retail space of 75m sq ft by the end of 2007 – a growth of 130% CAGR– and to 500-600 malls occupying 120m sq ft by 2010.
PRODUCT:
Organized retailing was initiated almost 15 years ago, with the German chain NANZ in the supermarket area and exclusive showrooms opened primarily by garment manufacturers. Since then, several formats have been tried and tested on a small scale. Through this, the key players have gained a high degree of understanding of the relevance of each type of format and are now at the stage of scaling up.
PENETRATION POTENTIAL:
Retailing is the largest industry in India, with a turnover of US$230b in 2005. It is also the most fragmented, with almost 12m outlets and extremely low retail space per capita. The share of organized retailing is at a low 3% and has huge potential to grow. Industry estimates of a 30% CAGR over the next five years imply that by 2010, this share would go up to 9% – still lower than in similar economies.
PROPOSITION:
Organized retailing, in our opinion, offers better value proposition for the consumer, and this value proposition increases with time as the scale of operations grows. The success of Big Bazaar hypermarkets and Food Bazaar supermarkets shows that the appeal has lasted beyond the initial novelty value and experience. Shopping convenience and ambience also adds on. India is likely to remain a mall-dominated retail market for the next few years, and this implies a high entertainment factor as the icing on the cake. In rural areas, the new ventures of ITC (Choupal Sagar) and DCM Shriram (Hariyali Kisan Bazar) intend to offer a complete solution to the farmer / rural consumer.
PAYMENT:
Consumer debt in India is still at a nascent stage and would grow at a fast clip. Barely 1% of the population has credit cards while retail credit to GDP has a long way to go. Growing penetration of credit cards and consumer financing would drive growth of organized retailing, especially by promoting an increase in sales value per customer. Pantaloon and Shopper’s Stop have already launched co-branded credit cards with ICICI Bank and Citibank, respectively. A meaningful proportion of sales are already on credit cards, which would only increase going forward.
PROMOTION:
With large retailers gaining scale and reach, their ability to spend on marketing and promotion would also increase, thereby attracting more customers. Local media is already being used extensively. Pantaloon has recently initiated television commercials also. These are the (P) illars of growth on which the Indian retail sector will stand.
EMERGING MARKET INDIA PRIORITY FOR GLOBAL RETAILERS
From Wal-Mart In US, Best Buy In China To Carrefour In France every leading modern retailer of the world wants to enter India for “Retailing”
Why???
For foreign player from a consumer behavior perspective, India is like a continental Europe with 28 states and 7 union territories. Languages, culture, religion, consumer preferences vary from one state to another.
For e.g.: - In north India “basmati Rice” consumed and in south “Kolam Rice”
Which offers many opportunities to those who understand the markets locally and pose many challenges that will not? Also, foreign players feel “Timing Is The Name Of This Retail Game” and this is the right time to hit the Indian Roads.
The Global Retail development Index tm (GRDI): -
The Global Retail Development Index tm (GRDI) help the companies to navigate the most attractive markets (countries) based on four parameters i.e. Country Risk, Market Attractiveness, Market Saturation And Time Pressure. And in 2006 GRDI India topped the index as most attractive emerging market for Retail.
Asia Will Flourisia: -
Asia reclaimed the lead position from the maturing markets of Eastern-Europe. As part of Asia; the Middle East posted the highest retail sales growth globally, led by United Arab Emirates and Saudi Arabia.
Asian countries dominate this year’s index by holding 40% of top 20 GRDI markets, while eastern European countries hold 35%. Just last year, Asia accounted for 30% while European captured 55%; this shift is not a surprise. Asia has always been the largest region of emerging markets. It represents 26% of global GDP and 32% of global retail sales its annual retail sales grew at a healthy rate of 7% in 2005. More important, modern retailers have tapped into just 28% of the region, compared with 42% of the markets in Eastern Europe.
Leading Market: -
The leading Asian market India is getting hotter as it is more attractive than ever to global retailers. India's economic growth, forecasted at 8 percent GDP in 2006, continues to support the retail industry. The estimated $350 billion retail market is expected to grow 13 percent and the top five retailers account for less than 2 percent of the modern retail market. And with one billion people, it is the second largest population in the world.
There are also fundamental changes underway in India. In early 2006, the government announced that it would allow foreign companies to own up to 51 percent of a single-brand retail company, such as Nike or FCUK. This is a significant break for global retailers and will spark a flurry of investment. Already, companies including Gap, Zara, Timex and United Colors of Benetton have announced plans to enter the market.
However, the relaxed regulations do not extend to companies that sell a variety of brands, such as Wal-Mart and Tesco. Despite the ongoing obstacles, Wal-Mart is eager to open its door in India and is investigating its options. One possibility would be to open a Sam's Club wholesale business through a joint venture and sell strictly to other retailers. This strategy skirts the issue of not being able to sell directly to consumers and establishes a presence in the local market. Tesco is planning to enter the market through a partnership with Home Care Retail Mart Pvt Ltd and expects to open 50 stores by 2010.
Still, controversy about how globalization will affect local retailers continues, and local conglomerates are moving quickly to ensure they don't lose out to international players. For example, Reliance, a leading Indian conglomerate, announced that it will invest $3.4 billion to become the country's largest modern retailer by establishing a chain of 1,575 stores by March 2007. Hyper city Retail, a subsidiary of K Raheja Corp Group, plans to open 55 hypermarkets by 2015.
India's government seems to be on a gradual, but definite, path toward allowing foreign retailers into the country. And when it takes the final steps, the peak time to enter will quickly pass
Retail Labour Availability: -
India offer excellent labour market. It has higher level of talent available and more development capabilities because of their proximity to western nations and demographically homogeneous labour forces labour rates are also significantly cheaper.
Comparing with china, India’s slower development pace and increased population growth rate will reduce the cost gap between it and China. India has more robust policies for retaining and developing its workforce. The country also has a rapidly growing cadre of professional managers, a large educational system, and there is a cultural willingness among employees to work co-operatively with the management.
M (Aking) Of Pe (Aking):-
A peaking market is developing quickly and is ready for modern retail. At this stage, retailers should enter the market through sourcing offices, local representation and new stores. Current peaking markets include Ukraine, India and Vietnam. Retailers that enter during this stage have the best chance for long-term success. Wal-Mart and Carrefour’s success in China in the late 1990s and early 2000s illustrates the importance of committing to a promising high-growth market at the right time.
Today, Wal-Mart and Tesco are adopting the same strategy in India—testing the market conditions before diving in. Looking ahead to 2011, don’t be surprised if Wal-Mart and Tesco are among the top three international retailers in India.
Hence, it is rightly said
In Ocean----“Beautiful Is Blue”
In Jungle-----“Gorgeous Is Green”
In India----------“Rise Is Retail”.
SECTION-II
RETAIL
ABOUT RE (TAIL)
Evolution:-
The markets become permanent fixtures with the establishment of shops. These shops along with the logistics required to get the goods to them were, THE START OF THE RETAIL TRADE.
Indian grocers were among the first in the world to acquire professional retailing skills. There is the old story of a good retail grocer and the bad retail grocer in India.
Once upon a time there were two grocers. One was perceived to be good and the other was considered bad. The good one always used to weigh his cereals, pulses, grams, etc. in such a way that if he had to weigh a kilogram he would initially place in the weighing balance produce less than a kilogram and than keep adding to it until it reached the required weight. The bad retailer, on the other hand, always rather unconsciously placed much more and than kept removing stuff from the scales until it weighed a kilogram. The good retailer had actually acquired such skills to create a positive image in the minds of customers!
Long ago, the father of nation, Mahatma Gandhi realised the importance of the customer for the retailer; he is in fact the first to emphasize on the importance of customer relation-ship management practices in India. What he said about the importance of the customer is famous the world over.
IT GOES LIKE THIS:--
The customer is the most important person on our premises.
He is not dependent on us, we are dependent on him.
He is not an interruption of our work; he is the purpose of it.
He is not an outsider on our business, he is part of it.
We are not doing him a favor, by serving him.
He is doing us a favor by giving us the opportunity to do so.
Today, the markets in India are not restricted to small retailers or grocers. But the markets in India are experiencing aggressive lapping by the branded retailers (Addidas, Mc-Donald’s, Nike, etc.) and modern format retailers (Pantaloons, Big-Bazaar, Shopper’s-Stop, etc.). The Indian retail market is washing its stains of un-organized retail and initiated to draw the lines of organized retail. Well, the days are not far away when; we will have Wal-Mart in our neighborhood to shop.
What Is Re (Tail)?
The word ‘retail’ is derived from the French word ‘retaillier’ which means ‘to cut a piece off’ or ‘break bulk’. In simple terms, it implies a first-hand transaction with the customer.
Re (tail):-
Retail is the tail of supply chain management or distribution system which helps the manufacturing industry to produce the goods as per the requirement or demand from the consuming class. Which in turn, build relation-ship between customer and industry and also increases satisfaction among customers.
RETAIL
RE--------RELATION-SHIP
T----------THROUGH
A----------AN
I-----------INFORMATION
L----------LINK
Manufacturing Industry RETAIL Place Of Consumption
Retailing:-
Retailing involves a direct interface with the customer and the co-ordination of business activities from end-to-end----right from the concept or design stage of a product or offering, to its delivery and post-delivery service to the customer.
According to Phillip Kotlar:-
“Retailing includes all the activities involved in selling goods or services directly to final consumer for personal, non-business use”.
Any organization selling to final consumer whether it is a manufacturing, wholesaler, or retailer---is doing retailing. It does not matter how the goods or services are sold (by person, mail, telephone, vending machine or internet) or where they are sold (in a store, on the street, or on the consumer’s home) is treated as retailing.
Retailer:-
Re (tailer) is a tailor who actually helps to build the information link. A retailer is one who sales volume comes primarily from retailing.
Earlier, retailer was not treated as an important part of marketing-mix, as companies were spending blindly on advertising to sell their products. But today we are seeing a phenomenon where the retailer is becoming a very important part of marketing-mix as many marketers today are aware that a retailer can choose not to sell their brand. No matter how much you shout in the advertisements, if it is not available on the retail shelf, it will not be bought.
As, retailers are rapidly improving their skills in demand forecasting, merchandise selection, stock-control, space allocation and display. They are using computers to track inventory, compute economic order quantities, order goods and analyze rupee spent on vendors and products. They are re-discovering the usefulness of customer service as a point of differentiation, whether it is face-to-face, across phone lines, or even via a technological innovation.
Functions of retailer:-
1. From a customer’s point of view:-
The retailer serves him by providing the goods that he needs in the required assortment and at the required place and time.
2. From an economic stand-point:-
The role of a retailer is to provide real added value or utility to the customer. This comes from five different perspectives:-
a. The utility arises from the need of providing a product in form that is acceptable to the customer.
a. The retailer does not supply raw materials, but rather offers finished goods and services in a form that the customers want.
b. The retailer performs the functions of storing the goods and providing us with an assortment of products in various categories.
c. Retailer creates time utility by keeping the store open when the consumers prefer to shop. By being available at a convenient location, he creates place utility.
d. Finally, when the product is sold, owner-ship utility is created.
All these are real benefits, which retailers offer by getting close to the potential customers.
In short, retailer serves the consumer by functioning as a marketing intermediary and creating time, place and owner-ship utility for him. Retailer also serves manufacturing by performing the function of distributing the goods to the end consumer, and thus creating a channel of information from the manufacture to the consumer.
Today, retailer are slicing the markets into finer and finer segments and introducing new lines of stores to provide a more relevant set of offerings to exploit niche markets.
The Glo-tail Industry
The Global Retail Industry:
The Global retail industry has traveled a long way from a small beginning to an industry, to the world’s largest industry with the world wide retail sales alone is valued at around $8 trillion.
The retail industry employees more than 150 million people and account for about 9% of global GDP (gross domestic product) and another 20% indirectly. Not just this, the worlds largest companies are in this sector: over 50 fortune 500 companies and around 25 of the Asian top 200 firms are retailers.
The retail industry in the developed economies operates largely through the organized retail channels. The share of organized retail is above 80% in US and Taiwan and is substantial in other emerging markets like Malaysia and Thailand. In China, organized retail constitutes about 20% of total retail sales. India, in comparison, is dominated by the traditional retailing channels, with organized retail having a negligible share.
Share of Modern Retail Trade in different Countries
Source: The Marketing White book, 2005, Business world
Retail Sales being generally driven by people’s ability (disposable income) and willingness (consumer confidence) to buy, compliments the fact that the money spent on household consumption worldwide has increased to 70% between 1980 and 2005. The leader has in –disputably been the USA where some 2/3 of population is consumer spending. About 40% of that is spending on discretionary products and services. Retail turnover in Europe is approximately Euros 2000 billion and the sector average growth looks to be following an upward pattern. The Asian economies are expected to grow over 6% till 2005-06. Positive forces at work in retail consumer markets today include high rates of personal expenditures, low interest rates, low unemployment and very low inflation. Negative factors that hold retail sales back involve weaking consumer confidence
GDP Average Annual Growth (2004-2008)
Source: Global Outlook, August 2004
Economist Intelligence Unit
Retail sector can generate huge employment opportunities and can lead to job-led economic growth. In most major economies, ‘Services’ form the largest sector for creating employment. US alone have over 16% of its employable work force engaged in the retail sector. Whereas, Poland employees 12%, China 6% and Brazil 14.7% of the total workforce. The retail sector in India employees nearly 20 million people, accounting of 6% of the total employment.
Share of Retail
Source: CSO (India), China Statistical Yearbook, US Economic Census, MGI.
A strong retail front – end can also provide the necessary fillip to agriculture and food processing, handicrafts, and small and medium manufacturing enterprises, creating millions of new jobs indirectly. Through its strong linkages which sectors like tourism and hospitality, retail has the potential of creating jobs in these sectors also. In organized retailing upon the overall employment situation, a pro-active governmental support mechanism needs to evolve for nurturing the sector.
World over, the retail sector is not only the oldest but also one of the advanced user of technology. It plays a significant role in world economy, not only because of the employment opportunities that it creates but also because of the contribution that it makes to the economy of the country. As 10% of the world’s billionaires are retailers which can be proved by the following table, indication the list of top 20 retailers in the world and their level of operations.
World’s Largest Retailers
Source: Fortune….
The world of retail is the fast changing one and calls for constant evolution on the part of the retailers. A retailer not only needs to keep up with the ever-changing expectations and demands of the consumers but he also needs to keep track of the competition, the changes in technology and the socio-economic climate of the nation he is operating in.
PHASES OF INDIAN RETAIL INDUSTRY
Retail markets also pass through a life-cycle and distinct phases of growth, which shows the market of the world and the stages of growth that they are at. The Indian Retail Industry is evolving in line with changing customer aspirations across product groups, with modern formats of retailing emerging. This is inline with what has been observed in other developed markets.
Organized retailing in most economies has typically passed through four distinct phases in its evolution cycle. That is:
1. INCEPTION: -
In this phase, new entrants create awareness of modern formats and raise consumer expectations. As, in India the modern retail industry began when shoppers upgraded from local shops to super bazaars. The open layout and self service concepts, was used to being served while shopping. This phase was driven by entrepreneurs like Subhiksha and Vivek’s in the South, real estate owners like the Raheja’s (Who started Shopper’s Stop) and marketers who integrated forward from manufacturing to retailing. For instance, lifestyle brands like Zodiac, Park Avenue and Bombay Dyeing which opened exclusive stores. This phase is completely driven from the demand side and not on the supply side. Currently African markets are in this phase.
2. GROWTH: -
In this phase of evolution, consumers demand modern formats as the markets develop-thereby leading to strong growth. This phase is also called “Consumer Driven” where buyers are exposed to new retail formats. This lead to first-generation retailers expanding to multiple locations (Shopper’s Stop, Food World and Subhiksha expand their networks as well as their locations). Convenient timings, dial-n-order, free-parking, provision for trial and taste, prices below MRP. (Maximum Retail Price), free home delivery and ‘No-Questions-Asked’ return policies are some of the features offered by theses new forms of stores.
Pure retailers like Westside and Lifestyle provide a unique selling proposition of choice and with. They captured a higher share of the organized retail format and cut across all categories. For E.g. Barista in Coffee, Pizza Hut & McDonalds in Quick service, Swarouski in Crystal, swatch in Watches, THS in home, Agrani Switch in technology products, Apollo Pharmacy and the medicine Shoppe in pharmaceuticals and Ceat Shoppe in tyres.
Global Retailers like Mark & Spencer and Mango are evincing interest in India with their pilot projects. This phase is a period of growth; India Is Currently In This Stage.
3. MATURITY: -
In this, intense competition forces retailers to invest in Back-End-Operating efficiency. Retailers exploit economies of scale and offer the best prices to their customers. The focus is on customer acquisition and category management. Cost saving in terms of initiating vendors’ partnership and increasing stock turn stake priority. Retailers expand into non-metros and look at various customers’ loyalty programmes. Many Retailers In China And South Asia Are In This Phase.
4. STAGNATION: -
In last phase, the retailers explore new markets as well as inorganic opportunities as growth tapers off. This phase is also called a ‘Period of Consolidation’. The organized sector acquires a significant share of the retail pie. It is the start of a Cross border movement, with merger and acquisition gaining in importance.
Retailers in North America and Europe like Wall-Mart, TESCO, M&S and Carrefour are in phase four, where they are looking for cross-border movement. Further more, companies start adding more stores and newer markets to their portfolio. There is a fair degree of domestic consolidation as well. Sourcing gets done globally.
Thus, retailing in India has a very haul ahead. The process of getting into newer forms of purchasing has being gradual because of traditional buying habits and the manner in which traditional retailers manage relationships. There is no specific international format or an existing role model that can be easily adapted and applied in the Indian context. India is going to that phase in which the US experienced in 80s and early 90s. The growth and development of organized retailing in India will be driven mainly by two factors: low-price and benefit the customers can’t resist. Economies of sale will drive down the cost of supply chain and increase the benefits offered to customers. From Product Based Shopping, the emphasis will shift to Experience-Based Shopping.
RETAIL (IN) INDIA
India has been a nation of Dukandars - around 12 million retailers (highest retail densities in the world at 6%) more retail-shop than the rest of the worlds put together retailing has been in our blood - as a shop-keeper or as a shopper. India boasts of the world’s largest retail network, its closest competitors being Mexico, at 1.8 million. This befits a nation which is the second largest consumer market in the world.
The retail sector in India is highly fragmented in nature and it is often remarked that the retail industry in India is nasant and mostly un-organized. Retail outlets in India exist in all shapes and sizes–from a “Pan-wala” to a “Shopper’s Stop”. However, most of the outlets are basic Mom-and-POP stores-the traditional “Kiryana” shop in the locality, which are smaller than 500 sq. ft. in area which translates the per capita retailing space of 2 odd sq.ft., with very basic offering and little or no ambience are landscape, considered to come under the unorganized sector.
Traditional Retail Formats
While it is true that they do not use technology, they are well aware of the needs and wants of their customers they know what and how much to stock and are aware of their likes and dislikes many of them also know their customer by name and offer add on services like free home delivery and credit facilities. This is the traditional form of retail in India.
In India, retail is the second largest sector after agriculture-Estimates suggest that the industry provides employment to 6 % of total workforce of the country. Retail sales totaled at Rs. 9.3 trillion (US $230 billion) in 2005, contributing about 55% of private final consumption expenditure. The retail sector is the largest contributor to India’s GDP and is expected to grow at 5-6% per year. The market size of Indian retail sectors is six times bigger than that in Thailand and four to five times bigger than that in South Korea and Taiwan.
ORGANISED RETAIL ON STRONG GROWTH PATH
Source: Industry/Motilal Oswal Securities
Further, based on ownership and management style, the industry can be classified into to categories –unorganized and organized.
Unorganized Retail: -
Counter stores, Kiosks, Street Markets and Vendors, where the ownership and management rest with one person, are classified as traditional or unorganized retail outlet. These formats typically require employees with low skills and account for 97% of the sector’s output (Sources: CII Mckinsey report). Theses are highly competitive outlets, with minimal rental cost (unregistered Kiosks or traditional property), cheap labour (family members working) and negligible overheads and taxes.
However, unorganized retailers suffer due to their inability to offer a wide range of products, poor shopping experience, and their inability to offer overall more value to their consumers due to lack of sourcing capabilities.
Organized Retail: -
In organized retail, the retailers offer more value to consumers by way of wider assortment, improved availability, pleasant shopping environment reliability of quality, financing options, trial rooms for clothing, products return and exchange policies besides competitive prices. This has created the rapidly growing opportunity for organized modern retail formats to grow at a faster pace. Modern retail formats includes supermarkets, hypermarkets, Malls Discount stores, etc.
The organized retail sector is expected to grow stronger than GP growth in the next five years driven by the factors like changing lifestyle, income growth and favorable demographic pattern. And it is said, that organized retailing in India is evolving as a star, and three-to-four years down the-line will shine on the Indian markets.
Hence, there is a definite need to understand the nature, size and everything about the organized retail in broader sense.
ORGANISED RETAILING: -
Its time has come ------
The retail industry in India is the second largest-sector after agriculture retail sales is totaled at Rs. 9.3 trillion (USD 230 billion). From this, the share of organized retail is dismal 3% as compared to almost 80% in the US. India also lags behind other developing countries like Brazil, Taiwan, Korea, Eastern European countries and China.
But the story is set to change…… Retailing is going through a transaction phase in India. For a long time, the corner grocery store was the only choice available to consumers. But as the corporate - the Piramals, the TATA, the Raheja’s, ITC, S.Kumar’s , RPG Enterprises and mega retailers - crossroads, Shopper’s Stop and Pantaloons race to revolutionize the retailing sector, retail as an industry in India is coming alive.
India is the last large Asian economy to liberalize its retail sector. Hence, organized retailing will grow at 25-30% over 2005-10 and the share of organized retailing would reach 9% by 2010, this is achievable given the small size currently. A 30% growth in organized retailing will prove to 20% of incremental addition of organized retailing in the total retail pie.
But how does will it happens
The increasing literacy in the country and the exposure to developed nations via satellite television or by way of the overseas work experience has changed customer pre-spending, which shifts customer’s preference towards organized retailing.
Not just this, the Favourable government policies emerging to support the growth of organized retailing, by way of providing quality retail space for the development of malls. As India is witnessing a huge revamping exercise as the traditional markets make way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores.
Malls and lifestyle stores have begun appearing in metros and tier II and tier III cities and towns introducing the Indian consumer to ‘a shopping experience like never before.’
Following are the Key drivers of organized retailing
1. Favorable demographics
2. Changing attitude towards spending
3. Shifting customer preference towards organized retailers
4. Increasing/easier availability of quality mall space
1. Favorable demographics
The macro environment in India points towards a sustained rise in consumption. India will have the highest number of people in the consuming age group ever in its history, combined with a high dependency ratio (62%) and increasing urbanization levels (33%).
Increasing proportion of population in the consuming age:
The proportion of population in the ripe consuming age will increase over the next few years. Over 60% of the population (estimated 720m people) will be in the age group of 15-54 by 2010 compared to 58% (estimated 660m people) in 2005. The ratio of non-working population to working population (dependency ratio) will decline steadily over the next few years.
Rising purchasing power:
The rapidly growing services sector and a pick-up in industrial activity will underpin economic growth, leading to growth in per capita income. A large number of jobs are being created in the services sector, with relatively high salaries and younger age profile. Assuming nominal GDP growth of 13% and population growth of 1.1% per year, per capita income should grow at around 12%. The growth in consumption expenditure would exceed per capita income growth, as a higher proportion of the population moves into the consuming class. According to NCAER, the number of households in middle-high income groups would grow at 7.9% over the next 3-4 years.
Fast growing urban population:
India’s urban population is growing at 2.3% per year as against a total population growth of 1.1% (Source: UN). This would add 50-55m to the high consuming urban population. Organized retail will primarily be an urban-centric story for the next few years, though companies like ITC (through Choupal Sagar) and DCM Shriram Consolidated are venturing into the rural retailing space too.
Growth in number of nuclear families:
The phenomenon of nuclear families is increasing, more so in urban areas. This is one of the factors driving the ongoing housing boom. Numbers of new homes are likely to be 4.5m per annum, which will still be insufficient to fulfill the demand. Also, average age of home owner has come down from 40s to almost 27-28 years. This would increase spends on categories like furniture, consumer electronics and soft furnishings. The industry is also gearing up to this demand, with the launch of exclusive stores for these categories. Pantaloon is launching its Home Town range of complete home stores while Shopper’s Stop has recently launched its first Home Stop store in Bangalore.
2. Changing attitude towards spending
Indians have traditionally been savers and low spenders with thrift values. A closed economy with high interest rates also heavily incentivised savings. However, this is changing with the new generation growing up in a liberalized economy. Awareness levels are higher with the explosion of Western media and boom in overseas travel. The number of Indians traveling overseas has increased to 4m per annum. The newer generation is comfortable not only in spending out of earnings but is also much less averse to purchases using credit.
Growing credit card penetration and credit facilities:
The base of credit cards in India has multiplied over the past few years, but is still lower than comparable countries. Credit mechanisms, including credit cards and personal loans are key drivers of retail spends. Currently, almost 40% of Pantaloon and Shopper’s Stop sales are on credit cards. The launch of co-branded credit cards (Big Bazaar with ICICI Bank and Shopper’s Stop with Citibank) will further increase the penetration of credit cards in retail spend.
3. Shifting customer preference towards organized retailers
From a consumer perspective, an organized retailer offers many advantages;
a) A collection of many brands/ products under one roof, which is very important for a price conscious Indian consumer
b) Most stores offer incentives/ promotional schemes not offered by standalone stores, e.g. loyalty programs
c) Prices lower than MRP (printed price) has become a regular feature in hypermarkets
d) Events and discount sales are a regular feature, e.g. Down Under theme fortnight in
Shopper's Stop with attractive prizes
e) A good ambience/ shopping experience, which can also be a family outing
4. Increasing/easier availability of quality mall space
One of the most important drivers of organized retailing is the changing real estate scenario in India, which is spreading the mall mushroom all over the country. Malls are likely to be a better alternative than High Street shopping in India, given the lack of planning and maintenance of common areas. Also, warm and sultry weather conditions favor temperature controlled environments like malls. Recent changes in real estate environment, like allowing 100% FDI through automatic route and relaxation of construction rules, are attracting sizable foreign investment. Thus, world-class construction quality and technology will flow into India, which will help maintain mall attraction for the consumer.
Mall construction is occurring at a frenzied pace. The 35-40 operational malls in 2004, occupying around 6m sq ft of retail space, will grow to more than 200 malls with retail space of 75m sq ft by end-2007 – a growth of 130% CAGR. By 2010, India will have 500- 600 malls occupying 120m sq ft. Mumbai, Pune, NCR (Delhi including Noida, Gurgaon, Faridabad and Ghaziabad) will account for 74% of the mall space by 2007. However, by 2010, mall development is expected to spread to almost 60 cities.
The government has also been lending a helping hand in this development by releasing land. Delhi Development Authority’s release of prime land in South Delhi and release of mill land in Central Mumbai are two instances. Also, entertainment tax concessions for multiplexes have encouraged the boom in that segment. High supply of mall space will keep mall rentals under check. Indian retail rents are amongst the lowest in the world and are likely to remain so.
High supply of retail space would also enable experimentation in new formats and product categories. Already specialty malls are opening up – Gold Souk and Wedding Mall in Delhi.
Retailing formats
Retailing formats have been evolving over the years in India, with the advent of specialized chains of textile companies like Bombay Dyeing, Raymond, S Kumar’s, Grasim and Vimal in the 1970’s as the first of the organized retail chains. Bata (footwear) and Titan (watches) also set up their countrywide chains during this period.
The 1990’s saw a sea change in retailing formats with the advent of large department stores (Shopper's Stop, Pantaloons, Lifestyle, Globus and Westside), supermarkets (Food World, Subhiksha, Nilgiri’s), hypermarkets (Big Bazaar and Giant), specialty chains (Music World, Health and Glow) and restaurant chains (Subway, Pizza Hut, Nirula’s, Barista, Café Coffee Day and McDonald’s). The late 1990’s saw the arrival of large modern malls, thereby dramatically increasing the availability of retail space for many of these formats to flourish.
1. Exclusive brand outlets
Exclusive brand outlets are company-owned or franchised outlets with different levels of control. Company-owned stores work on lower margins, as expenses are incurred on investments in stores. Franchised stores, on the other hand, work on higher margins and receive support from the manufacturer in the form of training of staff, visual merchandising, designing store outlets, etc.
Advantages and disadvantages
Exclusive brand outlets target customers who are loyal to the company’s brand. These outlets are located in High Street shopping areas or inside malls. One of the major disadvantages of exclusive outlets is that the customers do not have access to variety of brands and categories available in multi-brand stores. However, exclusive brand outlets located in malls are able to overcome this disadvantage, as customers have access to other varieties of brands in other shops located within the malls.
Potential
Growth prospects of exclusive branded outlets are extremely promising with the emergence of new brands and established brands looking to enter India. We also expect the prospects of such outlets to be boosted by the availability of quality retail space.
2. Multi-brand outlets
Multi-brand outlets (MBOs) stock merchandise of more than one brand, enabling the customer to choose from a variety of brands. Multi-brand outlets could be of small format
(300-1,500 sq ft) located in high streets, malls or local markets or of large format (1,500- 5,000 sq ft).
Advantages and disadvantages
Small format MBOs are only able to stock a limited range of goods due to limited availability of space. These outlets generally work on higher margins, as they deal directly with brand manufacturers who give them attractive discounts on bulk purchases. However, they run the risk of running a loss on any unsold stock.
Large format MBOs eliminate the limitation of less retail space and are, therefore, able to stock larger varieties and brands of goods. However, due to the large amount of capital employed, these outlets find it difficult to generate good returns on capital employed. MBOs work on the USP of offering a larger variety of goods at price points lower than exclusive brand outlets or specialty stores. However, their biggest challenge is to attract enough traffic/footfalls to get adequate return on capital employed.
3. Department stores
Department stores are organized MBOs with a large number of categories and brands on offer. An average department store may cover retail space ranging from 3,000-20,000 sq ft, making it the largest retail format. These stores are generally located in destination towns, metros and mega metros.
Advantages and disadvantages
Department stores offer the largest variety of merchandise and brands over a large layout, which enables them to attract higher traffic/footfalls than any other retail format. These stores generally have knowledgeable and trained staff, which leads to higher conversion rate and larger average check size. Large format, larger variety of brands and merchandise and increased traffic enables these stores to achieve economies of scale, which are passed on to customers in the form of better amenities and higher discounts. These stores focus on making shopping an enjoyable experience and generally enjoy high customer loyalty.
Potential
Most department stores deal in apparels and fashion accessories, which act as anchors for attracting higher footfalls. Such stores to flourish, with more international brands (particularly in apparel and home décor) likely to enter India. Department stores are the largest format in the retail sector and therefore require high quality retail space to grow. With increase in malls and increasing availability of retail space in the country, the potential for growth of departmental stores is high. While most department stores focus on selling differentiated brands manufactured by different manufacturers, some stores are also initiating private labels in their stores to increase margins. Private labels and their successful initiation by department stores could be a key differentiator between various department stores mushrooming around the country.
4. Specialty stores
Specialty stores are similar to exclusive brand outlets except that they are focused on a particular category rather than on a specific brand. These stores have a relatively smaller format compared to department stores; but depend on an interactive layout to enhance average check size.
Advantages and disadvantages
Specialty stores are focused on merchandise value rather than brand loyalty to attract customers. In order to ensure customer loyalty, they stock specific variety of merchandise to satisfy their customers. To a large extent, their success depends on their knowledge of customer needs and their ability to stock the right variety of merchandise. According to the American Express Retail Index on shopper loyalty, 56% of specialty store shoppers in USA have said that they remain loyal to the same store for more than five years.
In India, many of the specialty retail stores are not organized enough to retain customer loyalty. These stores do not have adequate customer retention programs which go a long way in ascertaining customer needs and thereby ensuring complete customer satisfaction. In addition, these stores compete with large department stores which offer larger varieties of categories and brands, thereby enabling the customer to finish his/her shopping in one location.
Potential
Success of specialty retailers depends on their understanding of customer needs and variety of merchandise stocked. Specialty retailers who undertake customer loyalty programs by offering regular customers attractive discounts and personalized services are likely to succeed. Many of the specialty retailers like Planet M are now locating their stores in various malls across the city, thereby eliminating the advantage offered by the department stores of one-stop shopping solution to the customers. Successful specialty retailers like Bata rely heavily on their domain expertise in their respective categories and their knowledge of customer needs.
5. Supermarkets
Supermarkets are similar to department stores except that they use foods and other replenishment merchandise as anchors to attract customers to the stores. These stores are located in busy markets or residential localities in metros and large cities.
Advantages and disadvantages
Supermarkets are large format stores located in residential areas in metros and large cities and stock replenishment groceries. This makes it easier for customers (generally housewives and domestic help) to make their household shopping from such stores. These stores compete with unorganized kiryana stores and are able to offer much larger varieties of categories and brands of merchandise compared to the kiryana stores. Besides, these supermarkets also offer better discounts and other services like home deliveries in local areas to enhance sales.
Supermarkets use foods as an anchor to attract customers. Indian customers prefer fresh foods and are averse to purchasing tinned and packed food. Besides, supermarkets run the risk of having unsold stock which is past their expiry date as foods are difficult to stock for long durations. Thus supermarkets run on low margins with the risk of losses on unsold stock.
Potential
Supermarkets have great potential as approximately 99% of foods business is dominated by kiryana stores which are highly unorganized vendors. Supermarkets which are strategically located near large residential areas could easily displace such kiryana stores as they offer superior services and discounts to customers. Supermarkets also have a better storage facility which enables them to stock merchandise for longer period.
6. Hypermarkets
Hypermarkets are one of the latest and more innovative retail formats to have hit the Indian retail industry. These are the largest of all retail formats and combine the advantages of Department stores and Supermarkets. Hypermarkets offer the largest varieties of merchandise and brands at low price points and bulk quantities.
Advantages and disadvantages
Hypermarkets do not have any particular anchor and the discounted prices are its biggest USP to attract customers. An average consumer can shop from apparels to foods, from house décor to footwear etc at these hypermarkets at prices much lower than any formats. Hypermarkets source huge quantities of merchandise (on direct purchase or on commission basis) directly from the manufacturers and stock them in their stores which give them large economies to scale. Beside the large varieties and brands of merchandise attract huge traffic/footfalls enabling these stores to get adequate return on capital employed. Hypermarkets are perhaps the biggest attractions at shopping malls with the customers preferring to make bulk purchases at these stores. Hypermarkets combine two of the biggest attractions for an average Indian consumer, viz. large variety of merchandise and cheapest available prices.
Potential
Hypermarkets enjoy perhaps the biggest potential of all retail formats with their ‘value for money’ strategy. With increasing disposable income, an average Indian consumer is now willing to go for bulk purchases. Hypermarkets have brought in the concept of family shopping with merchandise/categories for an entire family at a single store. One of the key requirements of hypermarkets is the availability of large retail space which is made available by the large number of malls coming up in the country.
7. Discount stores
Wal-Mart, the world’s largest retailer has changed the face of retailing in USA through its discount stores. Discount stores dominate the world retailing landscape with approximately 60% of the total retail business coming from this business. These stores combine size, scale and quality with price advantage and pass on these benefits to customers.
Advantages and disadvantages
Discounters have very large formats, generally located outside city limits or town areas.
They attain huge scale through their large formats and enjoy benefits of bulk sourcing from manufacturers. Large discounters sometimes become the single largest customers of manufacturers and thereby exert huge dominance over these manufacturers. This enables
Discounters to get attractive price reductions on goods sourced which are passed on to the customers as attractive discounts. Globally, discount stores have been one of the most successful retail formats.
No retailer in India has attained adequate size and scale to qualify as a discounter. Low penetration of organized retail is one of the major reasons for absence of discounters in India; as retailers have not been able to exert enough dominance over manufacturers to attain desired price points to attract customers. Besides, discounters in developed countries are generally located outside city limits because of their gigantic size and the customers generally travel by cars to these stores. Absence of adequate infrastructure facilities is also one of the major limitations for emergence of discounters in India.
Potential
As the share of organized retailing in the total retail sales of India rises, large retailers to exert huge dominance over merchandise manufacturers and thereby witness emergence of large discounters. With retail space within city and town limits limited, more and more retailers will be forced to expand their networks outside city limits. Such outlets are likely to be successful only if they are extremely large, cater to all the shopping needs of the customer and are well supported with proper infrastructure facilities. The infrastructure facilities to improve greatly with infrastructure being one of the major thrust areas of the government.
Categories galore
Retail by definition can cover all objects used by a consumer and thus, can have numerous categories. For the purposes of this the categories where organized retail is increasing its stronghold, and thus, these hold maximum potential is important.
Organized retail really started in India with department stores and thus, apparel and accessories have become the biggest category. But globally, food and grocery is one of the largest categories, which is likely to also increase its importance here. Categories like books and music have a high share of the unorganized segment, and thus, a shift to modern formats should enable significant growth.
Apparel and fashion accessories
Market size
India’s apparel and fashion accessory market is estimated at Rs800b, with the organized segment accounting for 13.6% of this pie. Apparel and fashion accessories have been used as anchors to attract customers in large malls and account for 39% of the total organized retail sales in India, forming the largest chunk of the organized retail pie.
Opportunities
Traditional formats like unorganized retailing and multi-brand outlets (MBOs) dominate the apparel and fashion accessories market although there is a perceptible shift towards modern retailing formats. New and emerging retail formats like hypermarkets and discount stores offer shopping experience for entire family at low prices, which is driving organized retail market share. A larger section of the society now has access to larger varieties of brands within the apparel industry at affordable prices.
Availability of quality retail space is critical for the growth of organized retailing in India and apparels are no exception. Most malls are trying to attract departmental stores (that largely sell apparel and fashion accessories) as anchors to increase footfalls. Most departmental stores have also realized the potential of increasing their margins by increasing the percentage of private labels in their overall portfolio. Growth of private labels would directly increase the organized retail market share, as the growth in private labels will be driven by organized retailers and unorganized retailers will not have any play in them.
Risks
Fashion plays a critical role in making or breaking an apparel retailer’s fortunes. Many retailers have been driven towards bankruptcy because of their inability to gauge the changing trends of fashion. A typical fashion trend usually lasts three months to two years. Therefore, it is essential for a retailer to understand the changing trends of fashion. Also, most successful fashions are copied within a very short span of time. Therefore, the first mover has very little time to cash in on his advantage. If he does not have adequate supply chain mechanisms in place, he is unlikely to gain from his first mover advantage. In India, the supply chain mechanism is still not in place for many retailers.
India is a diverse society with different consumers having different tastes. A national retailer cannot design identical clothes and expect to sell them across the country. He must be aware of the tastes and sensitivities of consumers in every corner of the country. The sheer size and diversity of Indian consumers makes India one of the toughest places to practice the trade.
Books
Market size
Book reading as a habit is slowly catching up in India with improving literacy levels. The size of the Indian book industry is estimated at Rs30b, with the organized segment’s share being less than 7% of the total books market at Rs2b. Curriculum books contribute 50% of the total book sales and are considered to be an emerging sector. Books are increasingly being given as gifts, which are expected to further increase book sales in India.
Opportunities
Book retailing in India has been historically characterized by dusty, dreary and browser outlets with unfriendly atmosphere. Reading as a habit has been associated only with a niche segment of the society, with the retailers taking their customers as regular and for granted. However, with the advent of stores like Crossword, Oxford and Landmark, book retailing has been revolutionized. Stores like Crossword and Landmark started out as pure book retailers, but have now added music and stationery to their stores.
The modern format of book retailing involves larger spaces, neatly designed interiors, and comfortable seating for the customer to enjoy his time spent in the store. These stores encourage the customer to spend long ‘browsing hours’ in the store, which leads to higher customer loyalty and repeat visits. These stores give a lot of attention to the placement of books, with best sellers generally placed in the front.
A large base of English speaking people, growing disposable incomes across ages and the positioning of modern bookstores as ‘lifestyle’ stores is now attracting a large number of people to these stores. Text and curriculum books present a huge opportunity for these retailers, with no organized retailer in this segment.
Risks
One of the biggest threats for organized book retailers comes from piracy of original publications, which eats into their profitability. Pirated publications are available cheap, which suits Indian customers who are extremely price sensitive. E-retailing also poses a significant challenge to brick & mortar organized book retailing in India. With rapid growth of plastic money, many Indian customers are now just a click away from ordering the book of their choice from such websites. Besides, these websites offer review of books, which helps customers to make their choices. International book retailers like Barnes & Nobles have launched their own websites to counter the threat from e-retailers like Amazon.com.
Music
Market size
Piracy has been one of the biggest problems for the music industry, globally. This problem is particularly acute in India. The size of the Indian music industry is estimated at Rs11b, with the organized sector accounting for a mere 14%. Pirated products account for about 36% of the market. The Indian music industry is the fifth largest in terms of volumes (181.1m units); but piracy has resulted in India ranking 18th in terms of music value (0.6% of total world sales).
Opportunities
The sheer size of the Indian music industry provides strong growth opportunity for the organized sector, provided organized players are able to overcome the challenge posed by piracy. The Indian music industry had been dominated by movie and devotional songs till the advent of television in the 1990’s, which increased consumer exposure to non-film music albums. The popularity of the FM radio channels has been increasing over the past few years and penetration of television is also increasing. Therefore, the penetration of non-film music to increase.
Organized retailers have banked on increasing footfalls in their stores to drive sales. They have resorted to expanding store size, providing good ambience, and having a large collection of titles to attract customers to their stores. Retailers such as Music World and Planet M have been successful in expanding their presence even in smaller towns by using this strategy and driving footfalls in the stores.
Risks
Like books, piracy poses the biggest threat to growth of modern formats in music shopping. Online retailing and downloads are also emerging as a viable alternative.
Jewelry
Market size
As a result of the average Indian consumer’s affinity to jewelry, especially the yellow metal, India remains the largest market for jewelry in the world. The size of the Indian jewelry market is estimated at Rs435b. Gold dominates the jewelry trade in India, with a 98% share. Only about 5% of India’s gold production is exported. Diamonds are fast gaining popularity and have also become an important export component. The branded jewelry market in India is valued at Rs11.5b and is growing at 40% per year.
Opportunities
Indians have since long considered jewelry as a personal and family asset, making it one of the most popular asset classes in the country. According to an industry study, 65% of the jewelry is purchased during weddings. With 5-6m weddings taking place every year, there is huge potential for organized retailers in the jewelry market. The industry has been characterized by traditional retailers like Tribhuvandas Bhimji Zaveri (TBZ), Popley & Sons, Danabhai Jewellers, Mehra Sons, PC Chandra and Krishnaiah Chetty & Sons, catering primarily to the local population.
Branded jewelry is a fairly recent phenomenon in India, with Titan’s Tanishq being launched in 1996. Organized retailers have adopted the strategy of their international counterparts by designing jewelry that is sold as part of a wardrobe for day-to-day wear and not for investment and occasional wear. However, unbranded jewelry still dominates the ‘marriage jewelry’ segment, primarily due to its comparatively high resale value. The entry of international players like DeBeers and Intergold has made diamonds more popular, primarily because these players have been able to sell diamonds at prices affordable to middle class consumers.
Organized retailers are banking on growing disposable income, especially amongst the increasing number of independent females, to drive sales of branded jewelry. They are bombarding their target customers with high voltage and visually appealing advertisements. Another important medium driving branded jewelry sales is television soap operas and films, sponsored by these retailers. Organized retailers are banking on the visual impact to sell merchandise. They ensure that their stores are beautifully decorated with jewelry to attract impulsive buyers.
Threats
According to one study, 41% of all jewelry shoppers are loyal shoppers. With organized retailing constituting just 2% of all jewelry trade, organized retailers have a long way to go to capture the mindshare of Indian consumers. Internationally, high value purchases are generally made through specialty stores and department stores. One of the biggest challenges for an organized retailer is to build a distinctive brand which is a time consuming and an expensive exercise. Organized retailers will also need to increase their size and scale to match the distribution network of the unorganized retailers if they need to take market share away from unorganized retailers.
Consumer electronics
Market size
The consumer durables market in India, estimated at Rs320b, has been growing at 12% per year and is expected to reach Rs600b by 2008. Organized retailers constitute a small chunk of the overall market, with the total organized market for consumer durables estimated at Rs25b. However, with the changing economic scenario and shifting shopping preferences, we expect the organized segment to account for Rs70b worth of consumer durable sales in five years.
Opportunities
Growth in the consumer durables segment took off after the entry of large MNCs like Sony, LG and Samsung. The 1990’s in India saw a boom in the sale of televisions, washing machines and air conditioners, as these large MNCs made their presence felt. Since 2000, there has been huge demand in the mobile phone and accessories segment due to the boom in the telecom sector. However, despite the environment being conducive for consumer durable sales, there are no national retailers of consumer durables. Retailers like Vivek’s, Vasanth and Vijay Sales have been more of a regional footprint and are established mostly in the South.
The Indian consumer durable space has been undergoing a change in terms of shifting consumer preferences, increasing disposable income, improving lifestyles and aspirations of the customers. The large number of independent youths in the economy and their need for high end consumer products with cheap access to credit is driving growth for the durables market. What has added to the growth potential is the drop in the prices of durables due to lower taxation by the government. However, the organized segment has still to deal with the challenge of the unorganized/semi-organized segment that still have the lion share of the consumer durables market.
Threats
One of the biggest difficulties for organized segment in gaining market share is that they are up against retailers who are semi organized in their set up. Much of the advantages of the organized set up such as a large store area, large array of applications on view, good sales personnel etc have already been adopted by the semi organized sector which dominates the sale of consumer durables in India. However, with more and more hypermarkets likely to be set up, the organized segment of the market would now be able to offer one stop shopping solutions to their customers.
Food and groceries
Market size
Food and groceries (F&G) is the most promising segment for organized retailing. The
Indian F&G segment is estimated at Rs6, 150b, making it the biggest segment within the retail market. It is estimated that out of every Rs100 spent by the consumer (SEC A and B), Rs41 is towards food and groceries. The organized segment is valued at Rs29.5b – a meager 1% share of the total F&G market, monopolized by the traditional ‘mom and pop’ kiryana stores.
Opportunities
Increase in disposable incomes, changing demographics, increasing number of retail formats and better quality is driving a shift in consumer preferences for shopping. In all segments of retailing, consumers are looking for one-stop solutions, i.e. they would prefer to finish their entire shopping under one roof. F&G is one area, where consumer shopping has been scattered. The focus of the organized segment in the F&G category is on dry groceries, with wet groceries like fruits, vegetables and meat products accounting for 2-3% of the overall offerings by organized players. However, consumer spending pattern indicates that 30-40% of the total spend is on wet groceries.
One of the biggest challenges in selling wet groceries is to establish a robust supply chain mechanism. International retailers have looked at eliminating middlemen in their supply chain through backward integration to ensure good quality and better profitability. This trend is now visible in India, with retailers getting into production of the goods they sell.
Besides, this emergence of private labels in the F&G category, which is leading to better profitability for the retailers and availability of a variety of quality products under one roof for the customers. Another advantage of backward integration by the retailers is that they are able to pass on cost savings to customers, enabling them to make their purchases at lowest possible prices. Some other factors that are leading to the success of organized retailers in this category are:
Large organized retailers (hypermarkets like Big Bazaar and Spencer) are able to create huge economies of scale and better supply chain integration, leading to lower cost of merchandise, improved stock turnover and better credit terms from vendors.
Organized retailers are able to build scaleable models and replicate them across regions, leading to better penetration.
These retailers have a wider store area and stock a wider range of merchandise than the kiryana stores. This gives the customer better choice.
Many of these stores offer the facility of home delivery, which eliminates the travel woes in crowded market area for the customer leading to repeat orders and customer loyalty.
Threats
There are several challenges that organized retailers face in gaining market share from the unorganized segment:
The F&G segment in India is characterized by the presence of a large number of middlemen, primarily due to the lack of an adequate supply chain mechanism. Further, the market is plagued by problems like poor infrastructure and losses in transit. The organized segment would, therefore, have to make huge investments in improving supply chain and removing other logistics bottlenecks to make an impact on the overall market.
Big Bazaar (Pantaloon), Spencer (RPG) and Star India Bazaar (Tata Group) are few of the hypermarkets with meaningful sale of food and groceries. Apart from these, there are players like Food Bazaar that meaningfully represent the organized segment in the F&G market. With food and grocery shopping still a localized affair, these organized outlets have not made any headway in increasing penetration. Customers have been unwilling to travel long distances at regular intervals for their F&G shopping.
F&G is considered to be a low margin category, with huge investments required in setting up a supply chain mechanism. Much of the advantages of these investments are passed on to the customers which results in lower overall margins.
Watches
Market size
The size of the Indian retail watch market is estimated at over Rs28b, with the organized segment commanding a 40% share (Rs11b). The demand for watches is estimated at 30m units in 2005. A large proportion of the demand for watches has been concentrated in the sub-Rs1,000 segment, but with growing income and more choice there also exists demand for high-end watches. With penetration levels being as low as 2%, there is immense growth potential for watchmakers and watch retailers.
Opportunities
HMT was the first organized watch company to make a foray into the segment, with its focus being purely on the functional aspect of watches and not on its looks. HMT was the king of Indian watch segment, till Titan came along in 1987 and the liberalization reforms of the 1990’s saw Titan taking over the role of the largest player in the segment. During this time, many Japanese models flourished, primarily catering to the needs of customers who were willing to pay a premium for better looks. Liberalization brought in several international brands like Piguet, Carrier, Christian Dior, Raymond Weil, Rolex and Tissot. These companies could assemble complex watch parts within the country, thereby avoiding duties and saving costs.
With rising disposable income, more independent young people (especially females) and better marketing, demand for premium watches has grown. Indian consumers are increasingly becoming fashion conscious and are allocating a larger share of their wallet to watches. Watch manufacturers are also making concerted efforts to make premium watches more affordable to middle class consumers and thereby increase penetration. The organized segment is now focused on positioning watches as a fashion item that the average Indian consumer can afford. With penetration levels for watches as low as 2% and market share of the organized segment at 40%, there exists huge potential to grow.
Threats
Titan and Timex are the only meaningful national retailers of watches after HMT. Many international watch makers have not been able to increase penetration in the lucrative
Indian markets primarily due to high import duties. The removal of quantitative restrictions has resulted in the entry of large international players but the high duty has meant that they have not been present in the economy segment, which has the largest volumes. This segment offers tremendous volume growth opportunities as watches are becoming a lifestyle item and thus, will grow in conjunction with rising incomes.
Footwear
Market size
The Indian footwear market is estimated at Rs100b with branded footwear constituting 42% of the total market (Rs42b). The footwear industry has grown at a whopping 810% over the past two years. The market size of the footwear industry in the top-20 cities of the country is estimated at 100m pairs per annum. The domestic consumption as per government statistics is about 1.1b units per annum, which translates into per capita consumption of 1.1 pairs per annum.
Opportunities
India is the second largest manufacturer of footwear, next only to China. However, 58% of the industry is dominated by labor intensive small and cottage industries (unorganized segment). The largest opportunity for the organized segment is in the ladies footwear segment, which accounts for 40% of the overall market. The unorganized segment accounts for 80-90% of the ladies footwear market. Internationally, ladies footwear dominates the footwear industry, with majority share. Indian women are increasingly becoming fashion conscious and with increasing disposable income, there is growing demand for fashion footwear.
India also has a very young population, leading to good demand for children’s footwear. India’s footwear retailing industry has been plagued by poor quality retail space and cluttered stores with bad amenities. However, with a large number of brand factory outlets coming up, the face of footwear retail is changing and regular consumers are being offered discounted prices. Loft, the Hiranandani-owned store in Mumbai has brought about a sea change in footwear retailing and has the potential to become a ‘destination store’. It is spread over 18,000 sq ft, with a collection of over 90 brands under one roof. Further, the store offers in-house cobbler service, pedicure center, large delivery counters and a huge parking lot. It has achieved 2,000 walk-ins a day, the highest in India for a footwear store. With more quality retail space likely to come up, more such category killer formats, which will drive organized retail penetration.
Specialized footwear retailers like Bata, Liberty, Nike and Woodland are now increasingly facing tough competition from non-specialist footwear retailers like Big Bazaar and Vishal Mega Mart. These non-specialist retailers are banking on the customer’s interest in shopping for all requirements at one shop. These retailers attract the customers to their shop by offering a variety of merchandise. The specialist retailers will have to invest in product innovation and store differentiation to retain their competitive edge.
Another aspect expected to drive organized retailers’ share in the overall market is their superior distribution network. More and more retailers are now trying to enhance reach, improving their brand offerings and positioning stores around areas frequently visited by customers – airports, resorts, health clubs and railway stations.
Threats
The biggest threat to the organized segment comes from the tax structure, which gives the unorganized segment room to grow. Most of the unorganized manufacturers form part of small-scale cottage industries, which do not have to pay taxes. This results in considerable cost saving, enabling them to sell their merchandise at lower prices.
Home improvements and furnishing
Home furnishing and improvements is a relatively new segment and is almost completely dominated by the unorganized segment. The size of the sector is estimated at Rs 200-220b. Some organized retailers like Pantaloon Retail and Shopper Stop are planning to roll out their formats to cater to the huge potential in this category.
Opportunities
With no specialty home furnishing retailer in India, the customers are forced to make their purchases from unorganized players, who often use sub-standard material or charge exorbitant prices in the absence of any competition. The current boom in housing has lead to huge demand in house furnishing. There exists a huge potential for retailers offering service-oriented home furnishing solutions. The lack of organized retailers has also resulted in localized shopping for home furnishing.
Unorganized market for home furnishing business forces a customer to shop for different products and services at different shops. A large organized retailer would be able to invest in large formats which would house the entire range of home furniture and may be able to provide different services like plumbing, electricity etc at his outlet. This would enable the customer to satisfy all his requirements at the same store, saving time and costs.
Threats
One of the biggest advantages for an unorganized retailer is that he is focused on providing few products or services, which enables him to specialize and build his reputation. Another advantage of an unorganized retailer is that he is able to develop personalized relations and offer credit to his clientele as they do regular shopping from him. |
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