Recent Trends In Indian Retail Industry Marketing Essay

A definition of retailing is essential in order to be in a position to assess the impact of retailing and its future potential. The current retailing revolution has been provided an impetus from multiple sources. These `revolutionaries’ include many conventional stores upgrading themselves to modern retailing, companies in competitive environments entering the market directly to ensure exclusive visibility for their products and professional chain stores coming up to meet the need of the manufacturers who do not fall into either of the above categories. Attractiveness, accessibility and affordability seem to be the key offerings of the retailing chain.

Retail as a whole can be divided into various categories, depending on the types of products serviced. It covers diverse products such as food, apparel, consumer goods, financial services and leisure. The proliferation of hypermarkets and supermarkets has led to a growth in food and grocery retail; thus, value retailing seems to be gaining ground in India. The other high growth verticals are apparel and durables. Impulse goods like books and music are also gaining a larger share in the organized retail market, with players making stores more accessible to consumers.

Retail business is linked to consumption patterns of the consumers and hence dependent not only upon likes and dislikes and changing preferences regarding goods and services but also on availability of disposable income in their hands. Thus, the growth of the sector is linked to discretionary income in the hands of the people, which is linked to economic growth.

Retailing – no marks for guessing this is the most active and attractive sector of the last decade. While the retailing industry itself has been present through history in our country, it is only the recent past that has witnessed so much dynamism. It’s the latest bandwagon that has witnessed hordes of players leaping onto it. While international retail store chains have caught the fancy of many travelers abroad, the action was missing from the Indian business scene, at least till recently. The emergence of retailing in India has more to do with the increasing purchasing power of buyers, especially post- liberalization, increase in product variety, and the increasing economies of scale, with the aid of modern supply and distribution management solutions. The Retail Sector is definitely witnessing a growth phase and everyone wants to make their presence felt in order to take their share of this huge pie.

FACTORS / COMPONENTS INFLUENCING RETIAL INDUSTRY

Demographic and Psychographic Changes: The changing demography lifestyles of the Indian population, needs and preferences of the individuals have influenced Retail outlets (Eg. Lifestyles etc.,). The percentage of young people in the country is increasing. The increasing number of double income family who has more disposable income is another contributing factor for this phenomenon.

Availability of adequate space: Most of the outlets in the unorganized sector are way too small and are essentially spread over the counter stores, where the customer does not find sufficient space to move around inside the retail shop. In the organized sector also, the availability of adequate space is a challenge, further the floor spaces are sufficiently large only in a few places in the metros.

Wide range of branded products availability: In today’s competitive market it is observed there is many competitively priced products along with quality are seen in market. High demand for the branded products by the customers which has been made available in the retail outlets has also led to the growth of retail industry.

Information and Communication Technologies (ICT’s): The Technology is going to play a major role in retail development in India. Retailers are going to experience the impact of technology in retail. Currently most of the retailers are operating almost everything manually. A country where almost 97 percent of retailing is in the hand of unorganized retailers it is predictable that the retailers are having operational inefficiency. The retailers are required to adopt modern technology to manage some of the operations like maintaining inventory, ordering and above all keeping track of customer by maintaining consumer data base.

Efficient communication channels: Many Retail outlets are using promotional campaign as one of the source to promote their business. Promotional offering for different set of customers, based on the needs and preferences, huge category of products along with substitutes is available to the individual.

Customer Requirement Management (CRM): The increasing purchasing power of the Great Indian Middle Class is the major reason for retail rush that is being witnessed. The retailers need to concentrate giving a great experience to the customers through efficient CRM.

RETAIL INDUSTRY SETUP IN INDIA

Retail in India has always been a lucrative business. Contemporary India is breaking the age-old tradition of family run stores and basing success only on modern marketing principals. Globalization of the economy has exposed the Indian consumer to a gamut of products and brands. “Quality of life” is a buzzword with the Indian consumer today. As a result, international brands of lifestyle products are increasingly making their presence felt in the Indian retail scene. The Indian Retail Sector is booming and mall growth is being seen as a clear indicator of the economic prosperity in India.

Retail formats in India

Types of Retail Chains operating in India

Food and Beverage

Health and Beauty

Clothing and Footwear

Home Furniture and Household Goods

Consumer Durable Goods

Leisure and Personal Goods

Revenues drivers

Growth in Indian retail industry has been driven by the country’s economic fundamentals over the past few years. Increasing number of nuclear families, easy financing options, increase in the population of working women, emerging opportunities in the service sector and rising disposable incomes during the past few years have been the key growth drivers of the organized retail sector in India. Consumers are now showing a growing preference for organized retail, which has resulted in increased penetration.

India has the highest shop density in the world and the present retail market in India is estimated to be US$ 200 billion of which only 3% (around US$ 64 billion) is in the organized Sector. This organized retail sector is poised for a take off. India is ranked second in the global retail development index out of 30 by AT Kearney. With the organized retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010. The share of modern retail is likely to grow from its current 3 per cent to 15 – 20 percent over the next decade. 85 percent of organized retailing is taking place in India’s urban areas while 66 per cent of it taking place in India’s 6 main cities alone. The growth is much faster in south India than in northern states.

According to a recent report (CII, 2001), there are some 12.08 million retail outlets in India (compared to 90, 5000 in USA) half of which are low cost kiosks and pushcarts. The organized sector accounts for just 2% (modern stores being only 0.5%) of the estimated $ 180 billion worth of goods are retailed in India every year.

In India retail market expects the organized sector to be around $ 18 billion (6% of the retail market) by 2010, which would support at least a couple of $450 million plus chains in grocery retailing and some $ 250 million plus stores in apparels, perhaps even specialized items like CD’s books, shoes, snacks bars etc. At present more than half of the retail sales in India are groceries, which meet needs at the base of the ‘hierarchy theory’ in motivation. In India more than 75 million households are now becoming global consumers, (based on their fast change in attitudes, qualities of life styles etc). So retailers also can change their strategy in the form of location, centrally air-conditioned, size of stores etc.

Table : Journey of Organized Retail in India

Year Growth Function

2000 First Phase Entry, Growth, Expansion, Top line focus

2005 Second Phase Range, Portfolio, Former options

2008 Third Phase End to end supply chain management,

Backend operation, Technology, Process

2011 Fourth Phase M&A, Shakeout, Consolidation, High investment

(Source: Ernst & Young)

PROS AND CONSEQUENCES OF RETAIL INDUSTRY:

India’s GDP growth rate is a healthy 9% for 2005-06 – and this has had its ripple effect on all industries- more so the Retail sector, of which only 3 % was organized until now.

The Indian retail industry accounts for 10% of GDP and 8% of employment.

India is being identified as the next big retail destination with an average three year compounded annual growth rate of 46.64%.

The Indian economy is poised to take the third position in the world in terms of Purchasing Power Parity by the year 2010.

The Indian Retail Market is a Rs. 1,200,000 million market as per the Images India Retail Report 2007.

Organized Retail market is zooming ahead with an annual growth rate of 30%

In India internet retailing is growing by 29% CAGR and Euromonitor report estimates that the a CAGR 48 per cent and in value term it going to touch INR 27 billion by 2010 from INR 4 billion in 2005. The report also predicts that the contribution of internet retailing to non- store retailing to is likely to be 46 per cent by 2010.

Malls are fast becoming sought-after entertainment hotspots. From a situation where there were no malls about a decade ago, the country will have over 300 malls translating to over 100 million sq. ft. in available mall space by the end of 2007.

Food and Grocery retail holds the most potential, as almost 99% of it is unorganized. A number of big players are entering the field of organized food retail like Reliance, Aditya Birla Group and the Bharti Group, which has tied up with the world’s largest retailer – WalMart. All these major players are expected to show an annual growth rate of 25- 30%.

The Retail boom has also led to the opening of a large number of single brand outlets across the country. With big brands and bigger outlets across all segments, from Apparel and Footwear, Watches, Books and Stationary to Jewelry and Consumer Durables, the sweep is indeed broad.

Issues with Indian Retail scenario are presented herewith:

(i) Availability of Space: One more aspect of Indian Retail chains is the less floor space availability in the Retail outlets. The kind of space that many of the Indian retail stores have is neither effective, nor feasible.

(ii) Differential growth in categories: Indian retail chains have grown more in certain sectors than others. The present trend shows growth in the lifestyle and apparel segments more than anything else. A lot of new chains are coming up in lifestyle retailing, such as Wills of ITC. In India, groceries are heavily controlled by the unorganized sector.

(iii) Brands and brand awareness:. One significant characteristic of Indian retail industry is the miniscule number of private label brands.

Information and Communication Technology: Some of the organized sectors have made use of the advance technology in capturing the information. Most of the organized retailers are using available and affordable technology to capture consumer information. It is widely felt that the key differentiator between the successful and not so successful retailers is primarily in the area of technology.

Partnership and trust: Unlike most Western countries, Indian retailers are mainly small stores and do not have much bargaining power with manufacturers in order to negotiate terms.

Economies of Scale: Due to low economies of scale, retailers are unable to offer significant discounts on their own.

Challenges faced by this sector:

The industry is facing a severe shortage of talented professionals, especially at the middle-management level. Most Indian retail players are under serious pressure to make their supply chains more efficient in order to deliver the levels of quality and service that consumers are demanding. Long intermediation chains would increase the costs by 15%. The available talent pool does not back retail sector as the sector has only recently emerged from its nascent phase. Further, retailing is yet to become a preferred career option for most of India’s educated class that has chosen sectors like IT, BPO and financial services.

Even though the government is attempting to implement a uniform value-added tax across states, the system is currently plagued with differential tax rates for various states leading to increased costs and complexities in establishing an effective distribution network. Stringent labor laws govern the number of hours worked and minimum wages to be paid leading to limited flexibility of operations and employment of part-time employees. Further, multiple clearances are required by the same company for opening new outlets adding to the costs incurred and time taken to expand presence in the country.

The retail sector does not have ‘industry’ status yet making it difficult for retailers to raise finance from banks to fund their expansion plans. Government restrictions on the FDI is leading to an absence of foreign players resulting into limited exposure to best practices. Non- availability of government land and zonal restrictions has made it difficult to find a good real estate in terms of location and size. Also lack of clear ownership titles and high stamp duty has resulted in disorganized nature of transactions.

Retailing is a `Technology-Intensive’ industry. It is quoted that everyday at least 500 gigabytes of data are transmitted via satellite from the 1,200 point-of-sales counters of JC Penney to its corporate headquarters. Successful retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and thereby, save cost. Wal-Mart pioneered the concept of building a competitive advantage through distribution and information systems in the retailing industry. They introduced two innovative logistics techniques – cross-docking and electronic data interchange.

 SUGGESTIVE MEASURES

Retailing, as is at a nascent stage in our country. Most organized players have managed to put the front ends in place, but these are relatively easy to copy. The relatively complicated information systems and underlying technologies are in the process of being established. Most grocery retailers such as Food World have started tracking consumer purchases through CRM. The lifestyle retailers through their `affinity clubs’ and `reward clubs’ are establishing their processes. The traditional retailers will always continue to exist but organized retailers are working towards revamping their business to obtain strategic advantages at various levels – market, cost, knowledge and customer.

Online systems link point-of-sales terminals to the main office where detailed analyses on sales by item, classification, stores or vendor are carried out online. Besides vendors, the focus of the retailing sector is to develop the link with the consumer. `Data Warehousing’ is an established concept in the advanced nations. It will be technology that will help the organized retailer score over the unorganized players, giving both cost and service advantages.

Supply Chain: The wastage occurs because of multiple points of manual handling, poor packaging, and lack of availability of temperature controlled vans. The most important part of retailing business is to find a balance between investing in front-end and back-end operations. The channel dynamics is going to change over next couple of years as the retailers start growing in size and their bargaining power is likely to increase. New entrants like Reliance Retail is believed to be investing substantially in the supply chain as it is started its venture by opening ‘Reliance Fresh’ stores.

Human resource: The country also possesses a rapidly growing cadre of promising professional managers, a large educational system, and there is a cultural willingness among employees to work cooperatively with management. If, we use these resources properly we can develop a large talent pool to fulfill the growing demand for various positions in the retail organization.

Foreign Direct Investment : The country is expecting a strong economic growth of about 8-10% per year and this can be achieved by raising the rate of investments as well as by generating demand for the increased goods and services produced.

The infusion of much-needed foreign investment would result in: (1) increase in the share of the organized retail sector (2) increase in employment (3) increase supply chain efficiency (4) lower prices, superior quality for consumers, (5) enhanced opportunity for domestic operators (6) making shoppers feel international shopping experience.

Differentiating strategies – Value for money, shopping experience, variety, quality, discounts and advanced systems and technology in the back-end, change in the equilibrium with manufacturers and a thorough understanding of the consumer behavior.

The product centric strategies at the retailer level include the strategies regarding availability of an optimal product range comprising of a broad product range, price and quality, innovative and new products enhances consumer satisfaction. The consumer centric strategies are those that are devised to positively affect consumer preferences for a particular category. The point of sale is the key to the process of consumer choice. The effectiveness of services offered, including after sales services, trade promotional programs, and relationship marketing enhances consumer satisfaction

CONCLUSION

Retailing, as is at a nascent stage in our country. The increasing importance of the supermarkets is one of the several changes taking place in the food chain. The advent of supermarkets in the rural communities has opened up unprecedented opportunities for a considerable number of (mostly large) farmers, albeit generating negative impact on small producers unable to meet the stringent requirements of supermarket chains and other modern food supply channels.

Growth in Indian retail industry has been driven by the country’s economic fundamentals over the past few years. Increasing number of nuclear families, easy financing options, increase in the population of working women, emerging opportunities in the service sector and rising disposable incomes during the past few years have been the key growth drivers of the organized retail sector in India. The proportion of sales through organized retailing is estimated to increase to around 6% by 2010. Indian retail is estimated to be almost worth a whopping $200 billion by 2016

The relatively complicated information systems and underlying technologies are in the process of being established. The traditional retailers will always continue to exist but organized retailers are working towards revamping their business to obtain strategic advantages at various levels – market, cost, knowledge and customer. It is therefore essential for the country to concentrate on the development of these sector by appropriate utilization of Infrastructure, Distribution network, Human Resource, Technological advancement with the developmental policies focusing on national as well as international assistance programmes include actions that will tap the new opportunities opening up in Retail Industry in order to sustain the competitive environment.