23

Chapter II

Review of literature:

24

2.0. Review of literature:

The literature review covers the concepts in the field of retail business on the global level,

and it also gives a snapshot of the traditional retail business in India. Thus, it frames the

groundwork for improving and adapting the ideas to the changing dimension of Indian retail

industry.

2.1 Systemic view

The complexity of IT implementation exists at both Individual and System levels (Corso,

Martini, Paolucci, Pellegrini, 2003). System complexity reflects the way in which components

manufactured have to be distributed to the players of the system upon predicting the demand.

The pattern of IT adoption should rather be analyzed in the frame of system complexity, which

also includes customer, economy, organizational mechanism and management practice (Skilling,

1996).

2.2 IT implementation and Organizational behavior

Knowledge driven development initiatives that make increased use of digital technologies

can create opportunities to develop knowledge networks to address a range of development

related problems (Walton, Gupta, 1999). Information Technology can provide significant

improvements in efficiency across a company, but only when implemented correctly. Otherwise,

IT system could be a curse and can drag the whole enterprise into spiraling inefficiency (Mandal,

Gunasekaran, 2003). IT benefits cannot be fully realized unless a strong alignment and

reconciliation mechanism is established between technical and organizational imperatives

(Mashari, Mudimigh, Zairi, 2002). The following part gives an Indian insight to the same.

25

Indian Retail Environment Indian retail market has around 12 million outlets and it is the largest

retail outlet density in the world. However it has 98% unorganized retail market (CII -

Mckinnsey, 2004). Market is controlled by a handful of distributors and wholesalers.

Traditionally the retail business is run by small convenient stores, having shop in the front and

house at the back. More than 99% retailers function in less than 500 square feet. Most of these

outlets have very basic offerings, fixed prices and no ambience. These are highly competitive

stores due to cheap land prices and labor. Also, these stores avoid the taxes as they belong to a

small industry sector (Banerjee, 2004).

Generally the accounts of trading are not maintained separately. The educational

qualification level of these retailers is low. Information Technology is, as if, unimportant for the

stores, due to its small size and small business. But due to the poor inventory management in the

lower tiers, the upper tiers and finally the end customers has to suffer in terms of demand

invisibility and transferred cost respectively.

2.3 Consumer Psychology

The majority of middle class Indian consumers are wary of large retail formats with well-

stocked shelves (Aggarwal, Singh, 2004). They are considered to have overpriced goods, even

though they sell at the government mandate Maximum Retail Price (MRP). Smaller stores often

stay open beyond normal working hours and work on low margins because they employ cheap

labor and have lower overheads. Such outlets attract customers in large numbers. Also

consumers have the notion that large shops spend on promoting themselves and pass on the cost

to the consumer. Retail format should be one of the factors which should be taken into

consideration since; this is one of the reasons for failure of Wal-Mart in Indonesia (Robert Slator,

2002).

26

2.4 Buying Behavior

Traditionally, the housewife handles the procurement of groceries in any house, and she is the

prime decision maker. Majority of the times, the customers are loyal to the retailer if no

articular incentive is available in any other shop. The retailer has an excellent personal

relationship with the family of the customer and he stays in vicinity. At times, he also gives

monthly credit to his customers and maintains a log book of the purchases of the customer over

time. Normally, the retailer is changed if there is a new person who is offering a lower price,

better quality or better service. The Indian customer normally does not go to a distant place for

groceries because of lack of mobility or the cost involved in mobility. However, he is prepared to

go to places for buying apparels or electronic items which are high involvement products

(Mckinsey, CII, 2004).

2.5 Recent Trends

Sustained GDP growth rate in the last 10 years has already created a base of over 30

million consumers. Current economic indicators seem favorable, and if a GDP growth rate of 6-7

% can be maintained, a 60 million affluent consumer base is possible by 2010 (CII - Mckinsey,

2004). Now, with the Government considering to open the Foreign Direct Investments (FDIs) in

retail sector, the entry of multi-national retail chains would change the entire retail scenario of

the country. As per the ―National Council of Applied Economic Research‖ (NCAER), almost 40

percent of India‘s high income urban population accounts for the 20-25 largest cities with a

population of more than one million. Therefore, most retail formats in these markets would be

seeing a change from Small Enterprise to the Super centers (Sinha, Banerjee, 2004). Food sales

constitute a high proportion of total retail sales. The share was 62.7% in 2003 and was worth

27

approximately Rs 7,039.2 billion. Other segments having high or substantial share in Indian

retail include the apparel and the electronic sector.

2.6 Healthy signs for Organized Retail Business

In the year 2003, the customer spending had gone up by 9.6 per cent compared to the previous

year. The growth in 2003 implies a rise in market opportunity for retailers, estimated to be in the

range of 150 billion Rupees, among the Section A and B categories (upper and middle class), in

urban India alone (Hanna, 2004). Earlier, customers used to look for value of money first with

quality being second decision parameter. But nowadays, due to branding and exposure to media,

consumers look first at the quality of products and then look for value of money. Hence business

with the big suppliers providing the branded merchandise will spring up more (Kinra, 1995).

Information Technology, Quality Control, Training and streamlining operations to improve

efficiencies are becoming the focus areas for industry assortment, innovation and planning for

customer retention.

2.7 Development of Supply Chains

The network character of the supply chain is important and the key issues in the

management of the network are responsiveness, reliability and relationships (McLaren, Head,

Yuan, 2002). The global nature of Ex-4 Wall supply chain (inter-organizational supply chain)

raises the problem of global versus local control. ―Global co-ordination, local management‖

should be an approach for devising activities for global and local categories (McLaren, Head,

Yuan, 2002). The global activities include, for example, building the players of the supply chain,

network route structuring, information systems development, sourcing decisions and contracts.

The local activities include local customer service, inventory control, manufacturing,

28

management, etc. The division of Supply Chain can be illustrated by the four levels of

complications.

The retail supply chains usually are the Network type - the complex ones, because most products

are not seized from single site. It also has a pool of players to be chosen in any category. Hence

the flow of information through this dense network should be agile as well as systematic, to

avoid demand distortion.

2.8 Demand Chain Management

The demand chain management concept emphasizes that the primary control of the

material flow should be the customer demand (Kotzab, 1999). Demand chain management

thinking leads to a customer-centric design of the supply chain.

Order Penetration Point (OPP) is the point in the supply chain where products are

allocated to a specific customer order (Andries, 1995). OPP in the supply chain is often

discussed in conjunction with the term postponement. Postponement can be applied to form, time

and place. Form postponement means that companies delay production, assembly or even

planning and design until after the customer has placed an order. This increases the ability to fine

tune products to specific customer wishes. Time and place postponement or logistics

postponement means that the forward movement of goods is delayed to the last possible place or

moment in the chain of operations and goods are kept in storage in the distribution chain (Prasad,

1995).

The positioning of the OPP has a crucial impact on the supply chain responsiveness and

needed inventory levels. If the OPP is positioned near the end customer, the delivery time is

shorter, but uncertainty and the risks for the manufacturer are higher. If the OPP is positioned far

up-stream, the inventory risks are lower, but the service level to the customer is lower. The

29

lowest risk to the supplier is to have the OPP in manufacturing which eliminates the need for

inventories. On the other hand, this might mean long delivery times and low service levels to the

customers and the final decision is a trade-off between cost and service level as opposed to

competition.

2.9 Economies of Sale

There are three types of economies to be achieved with the supply chain approach on the

system‘s level: economies of scale, economies of scope and economies of speed (Shaw, Nisbet,

Dawson, 2001). Economies of scale in the supply chain convert into money in two ways - greater

bargaining power and lower unit costs, both being based on sheer volume. Economies of scope

means the benefit of being able to share resources across products, markets and businesses.

Economies of speed means the ability to react quickly to changing customer requirements, and

improved performance that is based on better sharing of control information. To be able to

realize the benefits, the network has to communicate openly and have common goals.

Economies of the sales make Every Day Low Price (EDLP) philosophy possible. EDLP

is probably one of the most difficult pricing strategies for any retail business to execute. It

requires a level of discipline that most retailers do not have. Trust has to be built with the

consumers over a period of years convincing them that the business will promote and that the

consumer will still be better off, receiving the lowest price for a basket of goods (Moyer, 1991).

EDLP offers many operational advantages as well. EDLP allows for more accurate

forecasting and combined with POS data sharing with suppliers, helps reduce inventory

throughout its supply chain improving inventory efficiency for both retailers and their suppliers

(Tarascio, 1997). A second cost advantage of EDLP is that it does not require the kind of

continuous price-item advertising that high-low pricing retailers must do.

30

2.10 Demand distortion in Supply Chains

Forrester made simulation experiments with supply chains and described how a small

change in market demand can lead to a substantial change in demand for the manufacturer

(Forrester, 1992). In his model a 10 percent variation in demand caused a variation of over 50

percent for the manufacturer. Forrester suggested that the prime reasons for the demand

amplification were long supply chains with time delays in information processing, long lead

times and different control policies for orders and inventories (Brito, 2001).

2.11 Cross-Docking and VMI

On the physical distribution side, one of the most important innovations has been cross-

docking (Kinnear, 1997). In cross-docking, the products delivered to a warehouse are sorted,

reloaded and transported to the stores without ever staying in the inventory. In addition to an

efficient distribution strategy, Wal-Mart implemented a new approach to inventory control

together with Procter & Gamble. It gave the control of inventories to the supplier. This new

approach is called Vendor Managed Inventory (VMI). In a working VMI-arrangement the

supplier is able to see the real demand with the help of Point of Sale (POS) data, which is often

called Electronic Point of Sale (EPoS) if transmitted electronically. Based on the actual sales

information and inventory levels in the stores, the vendor makes the replenishment decisions

concerning the quantities, shipping and timing. This eliminates the ordering and purchase

decision process, thus reducing the distortion of demand information in the supply chain. The

benefits of VMI are a better utilization of resources in production, transportation and a reduction

of inventory levels. The supplier‘s buffer stocks can be smaller due to the smoother demand

signal. Additionally, the supplier has more freedom to co-ordinate the replenishment process

proactively, instead of responding reactively to purchase orders. This literature review is viewed

31

as groundwork to frame the questionnaire. From the questionnaire framed, the current picture of

level of IT implementation to the retail business in India will be developed. The level of

efficiency or inefficiency of small and large firms and the firms implementing Centralized or

Decentralized inventory model, in terms of the inventory management will be confirmed.

A strategy is further formulated where in the recommendations are made with regards to the kind

of IT implementation and change in the organizational structure for the smooth operation.

Retailing in India is currently estimated to be a USD 200 billion industry, of which organised

retailing makes up 3 percent or USD 6.4 billion. By 2010, organised retail is projected to reach

USD 23 billion KSA Technopak: Global retail sales are estimated to cross US$12 trillion in 2007

Planet Retail estimates. The organized retail in food and grocery segment in India is growing

fast, although the exact numbers on its growth differ widely (16–50 per cent) depending on the

source and definition being used. The growth rates projected by Planet Retail for the next five

years indicate that the growth in organized food retail is likely to be accelerating,12 and it may

turn out to be akin to the information technology revolution but so far has been well rooted in

domestic demand and domestic capital The sales of the top-five grocery retailers, for example,

are projected to grow from US$1 billion in 2007 to US$15 billion in 2012, a 15-fold increase in

five years (Planet Retail website; Gulati and Ganguly 2007). Consumer outlook for 2005 and in

terms of market share it is expected to rise by 20 to 25 per cent KPMG (2005), Consumer

Markets in India. The report also predicts a stronger retailer growth than that of GDP in the

coming five years. Organized retail has the potential to lift the Indian economy to higher levels

of productivity and growth. In the context of the United States, a McKinsey Global Institute

study17 indicated a contribution by the retail sector of nearly one-fourth of the rise in

productivity growth from 1987-95 to 1995-99 Quoted in Morgan Stanley Research (2006). They

32

provide goods and services that appeal to customers, in an excellent ambience that is conducive

for shopping, created based on consumer preference analysis, and offer good value as some of

the benefits of large-scale purchases are passed on to consumers. In India, retail has its deep root

since long back –and that is why India is being known as ―Nation of Shopkeepers‖ with about 12

million retailers by 2003 Euromonitor.com,2004 . Organised retailing contributes 2% to the total

Indian retail sector and expected to increase to 5%, by 2010. Retail sector forms 10-11% of GDP

Retail Management-An Asian Perspective Draft Monograph,2006. It is attractive in terms of

investment, employment opportunity, and usage of technology. Indian organised retail industry

was worth Rs. 13,000 crore in the year 2000 and was expected to grow by 30 per cent in the next

five years touching Rs. 45,000 crore in 2005 http://www.indiainbusiness.nic.in/india-profile/ser-

retail.html . Retail managers are in a constant need for right kind of information for making

effective decisions. Modern advancements in ITES (Information Technology Enabled Services)

and communication has permitted deployment of DSS (Decision Support Systems). DSS can be

defined as computer based systems that help decision makers to confront ill structured problems

through direct interaction with data and analysis models. John R Beaumont,‖An Overview of

Decision Support System for Retail Management‖,Journal of Retailing Vol 64 No 4 Winter 1988

pp361-373 . DSS are basically characterized by three capabilities; dialogues, data and modeling-

the emphasis of each varies from organization to organization. DSS includes a wide variety of

systems, tools and technology that support decision making. EIS(electronic information

system),ESS( Electronic support system),GIS(geographic information system),OLAP(online

analytical processing),software agents, knowledge discovery system and group DSS – all can be

considered as DSS .Broadly two major categoriesof DSS namely enterprise wide DSS and

desktop DSS exist http://dss.cba.uni.edu/glossary/dssglossary.html . The organization needs to

33

pool in both internal and external data, software, customer data, models and trained people to

appreciate and use the systems for decision making which will help build sustainable competitive

advantage Andy Thompson & Jonathan Walker,‖ Retail Network Planning- Achieving

Competitive Advantage through Geographical analysis‖ Journal of Targeting, Measurement and

Analysis for Marketing, May, 2005;13,3;ABI/INFORM Global,Pg. 250. It is expected that

technology - based competition and innovation is escalating because of competitive pressures in

retail industry. Technology is viewed as one way of competing but needs to become more

affordable. According to Sheldon Leitch, a principal at Toronto - based Ernst & Young, who

tracks the retail industry,‖there are three things retailers need to do well: build in a front end at

the point - of - sale, segment the market by demographics and build so - called merchandise

allocation systems‖ Slofstra, Martin,‖ Tandem takes DSS to retailers,‖ Willowdale: Mar 30,

1994.Vol.20, Iss. 7; pg. 1, 2 . Thus DSS range from what if spread sheet and simulation analyses

to ―expert system‖- applications of artificial intelligence. While developing the DSS in the

organization, it is very essential that views of different stakeholders are taken into consideration.

For example; executives and professionals are the users, MIS managers are the developers

managing the process of development and installation, Information specialists build and develop

systems, system designers who create and assemble technology on which DSS are based and

researchers who study DSS and its process. Thus following are the key characteristic

requirementsof DSS: As managerial decisions are always made with organisation‘s own culture,

routine and operating procedures, DSS should have adaptability Little, John D. C.,‖ Decision

Support Systems for Marketing Managwers‖ Journal Of Marketing, 1979,43(summer):9-26.

Profile of the sample retail outlets: Convenience storeas the name signifies, are stores that

34

provide a high level of convenience to their customers in terms of convenient location and

extended operating hours A J Lambha‖ The Art of Retailing‖ 2003, Tata Mcgraw Hill , 476p.

DSS is computer enabled methodology for using the database

GDP growth rate in 2003-04 recorded a fifteen year high of 8.5% and subsequently maintained a

steady growth for the next two years. Real GDP growth accelerated from 7.5 per cent during

2004-05 to 8.4 per cent during 2005-06 on the back of buoyant manufacturing and services

activity supported by a recovery in the agricultural sector RBI (2006), Press Release: 2006-

2007/300. the 20 million middle class home in rural India equal the number in urban India4

and

thus have the same purchasing power Marketing White book (2006). Given the increasing urban

exposure of rural India, the urban and the rural upper-income groups can form an interesting

continuum market, giving it a scale of 23 million households, or 115 million consumers In 2006-

07, the consuming class would be about 60 million households, or 300 million consumers

Bijapurkar, R. (2003), The New, Improved Indian Consumer, Business World, 8 December, pp.

28-36. there are nearly 42,000 rural haats, average number of sales outlets per haat is 300 and

average sales per outlet is INR 900 and average foot fall in a haat is about 4,500. In rural India

there are 50 million Kisan Credit Card (KCC) holders and in 2002-03, LIC sold 50 percent of its

policies in rural India Marketing Whitebook (2006) Consumer spending in India has grown at

over 12 percent since mid-1990s and 64 per cent of Indian GDP is accounted for by private

consumption Consumers & Markets, Marketing Whitebook (2006), p.109. By the end of 2005

one single mall was operational with GRA of 1.2 lakh sq ft and by the end of 2008 there will be

37 malls operating with gross leasable area (GLA) of 15.2 million sq ft. Ludhiana is leading the

way with 11 malls and GLA of 5 million sq ft Retailing in Punjab: 2010 and beyond (2006), An

Image & CII study. Tesco is planning to enter the market through a partnership with Home Care

35

Retail Mart Pvt Ltd and expects to open 50 stores by 2010 The Global Retail Development Index

(2006), AT Kearney. the Land mark group also operates multiple formats such as hypermarket

(Max), departmental store (Lifestyle), Shoe mart and Fun city etc Family entertainment centre

which offers excellent opportunity for kid to learn and have fun. In early 2006, the K. Raheja

Corp (C.L. Raheja Group) has introduced it‘s value retail concept Hypercity which is the

country‘s largest hypermarket at 118000 sq ft. Hypercity carries product range varies from

Foods, Home ware, Home Entertainment, Hi-Tech, Appliances, Furniture, Sports, Toys &

Clothing. Hyper city Retail plans to open 55 hypermarkets by 2015. Reports in media indicate

that Reliance is set to open its hyper market format called ‗Reliance Mart‘ in Ahmedabad in

December 2006 in 1.5 lakh sq ft of space http://www.thehindubusinessline.com Subhiksha, the

Chennai based discount retail chain is going national. By July 2006 the retail chain had around

150 stores and planning to open 350 more by March 2007. The National Capital Region (NCR)

is going to get a fair share of 145 stores http://www.hindu.com. The 3,840 sq ft store retails wide

variety of products such as men‘s denim wear & sports wear, women‘s sportswear, junior jeans

and accessories like handbags, belts and watches. Apart from the new store in Hyderabad,

Tommy Hilfinger is also available in its exclusive stores in New Delhi, Gurgaon, Chandigarh,

Bangalore and Mumbai http://www.imagesfashion.com/back/expansion/outlet_mar05.html. US

based My Dollar Store started operation in Mumbai through master franchise arrangements with

Sankalp Retail Value. The store opened with a floor space of about 4,000 sq ft of space in Nirmal

Lifestyle and offers wide range of products ranging from shampoos-to-juice-toys. Predictions

about the growth and impact of (r)e tailing seem to have oscillated quite dramatically since the

late 1990s. Initially, some commentators argued that it would lead to a transformation of the

whole retail economy. The events of 2000 and 2001, which saw the failure of a number of high-

36

profile (r)e tailers and dramatic falls in the share values of the remainder, led to much more

measured assessments (Edgecliffe-Johnson, 2000). In 2002, Reynolds noted that many

traditional retailers had increasingly downgraded the threat potential of (r)e tailing on their

strategic agendas. Marketing Intelligence & Planning Vol. 22 No. 7, 2004 pp. 742-750 Emerald

Group Publishing Limited. Internationalisation is one of the key factors in European economic

development.

Today's shoppers no longer visit to "look-alike boxes"; rather they expect a unique experience

while shopping, from each buying situation. When shoppers decide to visit a particular retail

format, they anticipate fulfillment of their shopping motives. In case of existing formats, they are

often aware of the behavior that they are engaged, to obtain the highest benefit from their

interaction with the retail environment.

Stone, Horne et al (1996) advance economic factors hedonic factors or the combination of two to

find out shoppers' motives behind shopping in alternative retail formats. Lumpkin, Greenberg,

and Goldstucker (1985) found that elderly shoppers are less price conscious and feel shopping as

a recreational activity and their choice is heavily dependent on entertainment value. A store is

also chosen based on the self-confidence that the customer has regarding the store about the

nature and quality of the product and service the store would deliver. It also depends on the

involvement in the shopping situation. Stone, Horne et al. (1996) found impulse purchasing,

bargain hunting, experiencing the environment and social contact as the motivating factors

behind car boot sales in a study in U.K. Kenhove, Wolf and Waterscoot (1999) found store

choice is determined by nature of task. Sinha, Banerjee and Uniyal (2002) conclude image and

perception along with individual characteristic has significant impact on final outcome.

Perception about stores is, in turn, derived substantially by tangible characteristics of the stores.

37

While, Donthu and Garcia (1999) found enjoyment, navigation, and convenience are the online

factors, shoppers seek. Degeratu et al. (2000) indicated that on line shoppers were found to be

less price sensitive. They found that shoppers show different behavior, across formats, so far as

shopping occasion and shopping need are concerned. There was also a wide disparity in the

demographic, socio- economic and psychographic profile of the shoppers among different

formats. In demographic parameter women's share to e commerce revenue is only 17% in US in

the year 1999 (Rosen and Howard 1999), which may explain by their favorable inclination

towards touch and feel experience, available in store- format shopping only. Broadly, it can be

inferred that shopper's profile, need and purchasing power lead to format selection decision,

which is focused on the value sought at that particular purchase situation.

After living with a wide variety of format choices the customer today choose a medium as an

information source and another medium to purchase the product. Today shoppers can check

product availability on line and pick up at a store; buy online and return product at store. The

shifting trend in format patronage among US shoppers with in store category has been studied by

(Rousey, Morganosky, 1996) shoppers across different retail formats. Convergence of Formats

and Consequent Changes in Format Selection Pattern: After the rise and consequent pre-mature

demise of dotcom euphoria, a growing interest is emerging in multi-channel retailing. Given the

pure-play model did not deliver value as envisioned, online retailers are considering on-land

operations. While the brick and mortar stores take advantage of online medium to leverage on-

land strength, eventually paving the way for multi-channel structures from both direction.

According to BCG Report (2000) multi- channel retailers (Clicks and Mortar) now account for

two-thirds of on line sales revenue. BCG 's recent study reveals that consumer spending on line

will increase by 41%, from $ 51.3 billion in 2001 to $ 72.1 billion by the current year in the

38

United States itself. Schultz (1996) predicted that the 21-st century marketplace would be multi-

media and multi-channel with customers enjoying a wide range of media and channel options.

Rosen and Howard (2000) estimated the future impact of electronic commerce on traditional

retail sales. They opine that those with a physical presence and brand name will have a

competitive advantage over those with only virtual presence.

As a consequence, physical retailers with e-com capability are expanding their physical presence

at the above average rate. Retailers without e-presence are closing store at an above average rate.

However, retailers expanding virtually are also growing physically, with a view that Internet will

complement their physical presence. Out of availability of diverse retail formats and cross-

shopping pattern of consumers, raise some hitherto unobserved issues. Based on data of U.S.

customers, Morgaonsky (1997) argues, which makes shoppers' format patronage habits complex

and convoluted is that in the emergence of new formats consumers do not necessarily replace

one format with another. According to him, as many of the emerging formats emphasizes price

savings, the consumer may be exchanging time for money, in their multiple format patronage.

Online retailing, which has provided time and money savings, fails to provide touch and feel and

other hedonic benefits. A study by Master Card International revealed that, as format option

increases, consumers become more adventurous in their shopping habits. (Solomon, 1993).

Figure – 1 elicits the bases on which shoppers may like to look at the combined format retailers

(McKinsey, 2000).

Researches have been done to assess the impact of different form of retailing, namely stores,

catalogues, TV and internet by examining the shopping experience in terms of product display,

shopping time, delivery time and price. But the influence on retailer's brand by the emergence of

multi format structure has not been looked into. Format Switching and Consequent Possibility of

39

Brand Image Revaluation: Rasch and Lintner (2001) observed 85% browsers brought offline the

brand and product they identified online and concludes that the online channel has a profound

influence on consumer's offline behaviour, and therefore will play an integral role in an

increasingly multi-channel world. The concept of retail store's image is described as an overall

impression of a store as perceived by consumers, (Keaveny and Hunt, 1992), or as an

individual's cognition and emotions as inferred from perceptions or memory, that are attached to

a particular store (Baker et al., 1994). Retailer's image can be described as a combination of

functional and psychological attributes that are meaningful to the shoppers. A shopper confronts

retail mix in the form of elements, namely,

a) Variety and assortment of merchandise

b) Store design, display and ambience

c) Price

d) Customer service and facility and

e) Accessibility.

A shopper may switch to a new format either permanently or intermittently changing among

formats. While switching to new format a satisfied patron will be inclined to shop from favorable

retail brand, also present in that particular format. Though in a different format and shopping

situation, the shopper carries expectation of identical value proposition congruent to retailer's

brand image perception in the parent format. Buchanan, Simmons and Bickart (1999)

emphasised retailers' ability to influence on manufacturer's brand equity, either through physical

encounter (store format) or through direct communication (non- store format). He has further put

40

forward how the inconsistency created at the retail point may lead to revaluation of brand. In the

same manner, when retailers themselves proliferate into different formats, the shoppers evaluate

their experience about the retail brand from past shopping experience. Shoppers visit retail

format with some expectation, which is mainly derived from earlier experience. So, while

visiting a new format of a patronized retail brand they may encounter a new set of retail mix and

a different level of retail value proposition. When expectation are disconfirmed, shoppers engage

in constructive processing that can result in revised brand valuation. If the value is lower than the

earlier experience, the retailer's brand equity is exposed to the risk of dilution. On the contrary, if

the retail value proposition offered by retailer is equal or higher than original format it reinforces

and increases brand equity. To sum up, it can be said, when expectation are disconfirmed,

shoppers engage in reprocessing that can result in revised brand valuation. Abdelmessih and

Stanger (2001) pointed out the risk of delivering consistent experience is high as dissatisfaction

in one channel can be carried out to other channels also. He found that many retailers who

become frustrated with an online site, for functional failure, blame the retailer not the Internet In

the year 1999 itself, at least 6 percent of shoppers switched their patronage habit in the off-line

store, due to dissatisfaction in online experience. The number of switchers increased to 9 percent

in the year 2000. In absence of complete information about a store, shopper makes inferences

from available information cues before forming perceptions of the store (Monroe and Krishnan,

1985). Here the experience in online version of the store acts as a cue that helps the shoppers to

form impression about the on land store. The situation warrants more attention, as valuable

premium segment customers are more exposed to multi channel shopping and very sensitive

towards the brand image of the retailer they patronize. To achieve multi channel offering, retail

41

need to understand shopper's attitude behind each shopping situation across channels and how

these situation shapes shopping behavior.

Opportunities arising out of proliferation of retail formats: The new area of retail business

ushered lots of opportunity both for the shoppers and retailers. Shoppers acquire benefits from

savings in terms of time price and searching effort, expanded information on goods and services,

shopping convenience and greater availability of customized products, uninterrupted

accessibility and smooth flow of transaction choosing any of the available format. To the

retailers e-commerce offers greater efficiencies in market and information access, providing

scope of better services, reduced operating and product procurement cost. (Rosen and Howard,

2000). McKinsey study (Calkins, Farello and Smith, 2000) revealed that traditional store based

retailers only need spend about $5 a person a person to bring their existing customer online,

which is as high as $45 case of pure e- retailers. Retailer with strong brand equity enjoys

shoppers' preference and loyalty, and extracts either price premium or volume advantage (in case

of price parity), or both. (Stevenson, Shlesinger and Pearce, 1999). Synchronisation in

Delivering and Communicating Retail Value Proposition:

According to Henderson and Mihas (2000), new multi category retailers have emerged that

combined functional benefits like price, convenience and service, with the emotional relationship

that gives a retail brand true personality. They cited example of office supply industry in the U.S,

where retail players have started opening smaller stores, giving the shoppers the killer assortment

of goods through whatever format or channel best suits a given transaction. The culmination of

this trend is emergence of electronic commerce through WWW. They point out the retailer's

challenge of multi channel management and the need to provide a consistent brand statement

across each channel. But Wileman and Jery (1997) describe that retail formats appear to vary

42

substantially in their potential for supporting for the development of strong retail brands. While

segmentation is easy for repertoire retailers, proximity retailers occupy the opposite end. Thus

the task of retailers to bundle their retail strategy mix in a way that builds and maintain loyalty

across formats is particularly challenging.

Palmer (1997) reveals there are significant differences (Table-3) among the four formats, namely

In-store, Catalogue, Cable T.V and Internet in approaches to connecting with shoppers. Out of

120 separate products across four retail formats, his findings show that store design and product

display are format specific. Convenience in terms of shopping time and payment option is

significantly different across the formats. In providing accessibility (available shopping hours)

WWW is highest followed by Cable TV, catalogue and in-store. In absence of complete

information about a store, shopper makes inferences from available information cues before

forming perceptions of the store (Monroe and Krishnan, 1985).

Chen and Leteney (2000) opined that successful Internet retailers are those who have been able

to successfully transfer critical elements from traditional retailing to Internet. The desire of the

multi channel retailers to co-ordinate price in such a manner so as to prevent internal competition

among different formats of the same retail brand. Though, a study on standardized DVD brands

(Tang and Xing 2001) finds that prices by pure Internet retailers are significantly lower than

prices by on line multi channel retailers, the practice of charging differential price across format

by the same retail brand has severe impact on the brand image. In the same manner, any one of

the components of retail mix if not at par with the other formats, the brand image of multi

channel retailer loses focus. Communication and positioning decision are likely to be more

effective if the relationship among the objective environment of the format, motivating factors of

the shoppers and preference for the retail brand attributes are known. But motivating factors are

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not uniquely associated with individuals across formats or with formats across individuals. So,

the basis of positioning and differentiation cannot be determined in individual or format level.

Rather a decision of building retail brand, offering compelling proposition through different

formats to meet shopper's different motivating factors is a pragmatic approach. The value

proposition across formats is rarely fit, but the challenge to the retailers is to reduce the disparity

and leveraging the parent brand's equity in the new format situation.

As WTO-statistics show, world foreign trade volumes grew from 280 billion US$ in 1970 to

8,900 in 2004, and the direct investment volumes grew from 520 billion US$ in 1980 to 8,200 in

2003 (UNCTAD estimates a slight but steady increase for 2004;m UNCTAD, 2005; WTO,

2005). As is generally known, both are dependent on each other: direct investments involve

trade, and vice versa. Internationalisation research covers a period of about 35 years, but with the

focus on production companies. The internationalisation of modern retailing began in the 1990s,

and has seen highly dynamic development. Within only a couple of decades, the largest retailers,

such as Carrefour (No. 2 in the world) and the Metro Group (No. 3), have entered the market in

around 30 countries and now achieve foreign turnover rates of some 50 per cent (the figures for

the world‘s No. 1 – Wal-Mart – are 12 and 25 per cent) (Swoboda et al., 2005; Swoboda and

Schwarz, 2006). In comparison with other aspects of retail management, however,

internationalisation is a topic that is seldom discussed. Dawson (1993) and Sparks (1995) claim

theories of internationalisation that are specific to the retail trade International Journal of Retail

& Distribution Management Vol. 34 No. 7, 2006. For the third (consecutive) year, India tops [. .

.] as one of the most attractive countries for global retailers [. . .] Modern retail, accounting for 2-

3 percent of the market, is expected to grow at a compounded annual growth rate (CAGR) of 40

percent, from $8 bn. to $22 bn. by 2010. Overall India‘s retail sector is expected to grow from its

44

current $350 bn. To $427 bn. by 2010 and $635 bn. by 2015 (Morierty et al., 2007, p. 9). The

food and grocery retail sector, which had been a slow starter, is currently attracting the maximum

attention. Penetration of modern retail in the food and grocery retail sector is the lowest@0.8 per

cent (Images F&R Research, 2007, p. 21). Despite an inherently low-gross margin, this low-

penetration rate coupled with the huge market potential – 42.1 per cent of total consumer

shopping basket – (Businessworld, 2003/2004, p. 85) makes the food and grocery retail sector

very attractive for large business houses. Thus, we have today mega Indian business houses and

corporate like the Reliance Group of Mukesh Ambani (Reliance Fresh & Reliance Hyper),

Future Group of Kishore Biyani (Food Bazaar), RPG Group (Spencer‘s Retail), the Aditya Birla

Group (More), ITC Ltd (Choupal Fresh & Choupal Saagar), Wadhawan Holdings (Spinach), the

Godrej group (Nature‘s Basket & Godrej Aadhar), Subhiksha, J Raheja group (Hypercity), etc.

driving the forays into food and grocery retail through different models like single-format, multi-

format or integrated urban-rural model. And, to cap it all, we hope the first Bharti-Wal-Mart

(franchise operations of Wal-Mart in India) stores to start operations in early 2008 International

Journal of Retail & Distribution Management Vol. 36 No. 9, 2008 pp. 689-700 q Emerald Group

Publishing Limited. Traditional retail over the years India at the time of its independence in 1947

was in the clutches of a vicious circle of poverty – characterized by very low per capita

consumption and one of the lowest income levels in the world. Retailing was focused more on

the basic necessities rather than luxury. In terms of retail institutions, it was mainly mom-and-

pop stores (kirana stores) run by individuals and the wet markets or bazaars. There were also the

government-run public distribution shops (PDS) as well as different co-operative stores. All

these stores were having counter-service – self-service was not a feasible option. Even in the

early 1960s, it was reported that ―there is not a single supermarket in all of India‖ (Westfall and

45

Boyd, 1960, p. 14). Over the years, more and more counter-service format stores came up all

across the country and by the turn of the century it was almost 12 million. The majority of these

stores focused on food and grocery – in the form of fast-moving consumer goods (FMCG) items

– sold at maximum retail price (MRP). Many of the stores provide credit to customers. While in

terms of sheer numbers it is the grocery kirana stores which dominate, in value terms it is the wet

markets which are estimated to be accounting for about 70 per cent of food and grocery retail

sales (Jones et al., 2005). The level of the internet readiness of a country is important because it

has an effect on a nation‘s ability to compete globally (Sprano and Zakak, 2000). E-commerce

readiness at a country level is not necessarily the same among different industry sector levels

(Palacios, 2003). Furthermore, there are differences among SMEs within the same industry in the

level of e-commerce activities and adoption. SMEs do not constitute a homogeneous set because

they vary significantly by size, sector, location, knowledge base, motivation and others (Taylor

and Murphy, 2004). Fillis et al. (2003) believe that owner/manager related factors play a major

role in the adoption of e-business and e-commerce for smaller firms. For example, high degrees

of entrepreneurial orientation on the part of key decision makers are needed for a firm to adopt e-

commerce International Journal of Emerging Markets Vol. 2 No. 4, 2007 pp. 395-405.

In recent years, research has focused on understanding consumer behavioral response patterns in

out-of-stock situations in retail (Walter and Grabner, 1975; Schary and Becker, 1978; Zinszer

and Lesser, 1980; Motes and Castelberry, 1985; Emmelhainz et al., 1991; Charlton and

Ehrenberg, 1996) and response drivers (Schary and Christopher, 1979; Emmelhainz et al., 1991;

Verbeke et al., 1998; Campo et al., 2000; Zinn and Liu, 2001). However, there is almost

complete lack of understanding about consumer‘s attitudes towards out-of-stock store. It is more

important to understand attitude than behavior for two reasons. One, attitude towards store

46

influences behavior (which in turn determines profits) importantly and consistently; two, store

attitude can serve as an important measure for effectiveness of retailer strategies and/or practices.

For example, in an out-of-stock, retailer can ypically face revenue losses; however, if

attributes/factors which affect how consumers rate/patronize store are appealing/acceptable, store

attitudes would stand protected lending support to overall retailer strategy and/or practices. This

paper attempts to understand determinants of attitude of consumers towards store in out-of-stock.

This can help retailer protect consumers‘ store attitudes by appropriately modifying

determinants. Asia Pacific Journal of Marketing and Logistics Vol. 20 No. 3, 2008 pp. 259-275.

Practical implications stem from the prevalence of stockout situations. Grocery Manufacturers of

America (2002) identified stockout as obstacle in meeting shopper satisfaction objective. Yet

another Indian study, found 37 per cent of the top SKUs for six top FMCG players were out-of-

stock on a particular day (Retail Biz, October, 2003; Vinay Kamath, Hindu Business Line, 30

October 2003). Political concerns over the loss of livelihood by lakhs who run mom-and-pop

stores also need to be addressed (Bureau, 2007a; Jha and Guha, 2007). The Prime Minister‘s

Office of India had initiated a study on the impact of retail giants on small retailers by Indian

Council for Research on International Economic Relations and this move had been welcomed by

the Confederation of All India Traders. This study reports that unorganized retailers in the

vicinity of organized retailers experienced a decline in their volume of business and profit in the

initial years after the entry of large organized retailers, but the adverse impact on sales and profit

weakened over time (Joseph et al., 2008). The same study also reported that all income groups

saved through organized retail purchases and lower income consumers saved comparatively

more. This apparent conflict in the report as to why in spite of higher savings to consumers while

47

shopping at organized outlets the adverse impact on sales and profit of unorganized retailers

reverses over time, may be because the study takes a snapshot picture of the present without

delving into the possible reasons of why the customers behave the way he does. Asia Pacific

Journal of Marketing and LogisticsVol. 21 No. 1, 2009 pp. 127-143.

Internationally, while some studies suggest that large scale retailers like Wal-Mart are

responsible for widespread closings of mom-and-pop stores (Wal-Mart Watch, 2005; Basker,

2005) and question whether cost to communities in terms of labor displacements and higher

poverty is offset against benefits of lower prices and greater convenience (Goetz and

Swaminathan, 2006), other studies suggest that the process of creative destruction unleashed

byWal-Mart has had no statistically significant long-run impact on the overall size and

profitability of the small business sector in the USA (Sobel and Dean, 2006). In Asia, with the

exception of Hong Kong, Singapore and Malaysia, traditional channels still command more than

half of the grocery retail market in the rest of the countries in Asia (KPMG, 2006).the experience

in China and Indonesia has shown that while both organized and unorganized sectors exist and

grow for the first 5-10 years, albeit at different rates, the structural changes start hitting the

unorganized sector after the share of organized retail reaches 25-30 per cent (Gulati and

Reardon, 2007). At present certain Asian countries which have witnessed high growth rates

between 2003- 2007 in modern grocery sales are China (105 per cent), Turkey (56 per cent),

Vietnam (59 per cent), Indonesia (70 per cent) and India (49 per cent) (Gregory, 2008). Overall

situation in Asia for grocery retailing indicates shrinkage in the traditional grocery sales with

South Korea witnessing a 13 per cent decline in small retailers between 1996-2004, Hong Kong

facing a decline in market share of traditional grocery channels by 21 per cent between 1994 and

2004, Singapore witnessing a fall of 8 per cent between 2002 and 2003 in the proportion of

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households spending bulk of their grocery money at traditional shops, Japan facing a decline in

contribution of small and independent businesses to the grocery retail market to the tune of 7 per

cent between 1998 and 2004, China having traditional style markets contributing to only 68 per

cent of grocery sales in 2004, and Indonesia facing a shrinkage in traditional retailers, including

wet markets, roadside stalls and independent grocers (KPMG, 2006). In India modern trade or

organized retailing already account for 30 to 40 per cent of grocery sales in the top 6-7 cities of

the country (Kakkar, 2008).

Employers become trainers in retail : Can the logistics sector follow suit?

The retail boom is likely to create an additional 2.5 million new jobs by 2011. Surprisingly, there

is not one premier educational institute offering training courses with retail focus and the

capacities of smaller institutes nowhere close to demand. Homegrown retail giants are now

following the global pattern of supporting training infrastructure. Some are setting up their own

schools: a case in point being the RPG Institute of Retail Management. ITC is planning a retail

training academy in partnership with NIS Sparta. Pantaloon Retail (PRIL) started a one year full-

time post- graduate retail management program at K G Somiaya, Mumbai, five years ago. Its

other programs include the recent distance learning course in retail management with Madurai

Kamaraj University.The company is looking at the NIFT and Pearl Academy to teach visual

merchandising. Its 17,000 employees are eligible for a two-year fully paid MBA after two years

of work. http://economictimes.indiatimes.com/articleshow/842990.cms. For keeping the store

attractive for shoppers the store adds new products on a weekly basis. Mulund boasts of three

dollar shops on SL Road, and one in Mulund (E) near the station. Royal Shoppe on SL Road

offers everything from crockery to towels, shoes, curios, lamps, etc. Royal Shoppe now offers

goods ranging from Rs 29 to over Rs 1,699 http://mid-day.com. Rural incomes are growing

49

steadily as well. NCAER shows while the number of middle-class households (with annual

income between Rs 45,000 and Rs 2.15 lakh) is at 16.4 million in urban India, the figure stands

at 15.6 million http://www.blonnet.com.The Godrej Adhaar, the rural retail initiative of Godrej

Agrovet Ltd operates a chain of 18 stores providing a host of services to farmers and their

families and is planning to set up at least 1,000 stores across rural India in the next five years

http://www.thehindubusinessline.com.

In 2005 LG Ezbuy was the major internet retailer in value terms with a commanding share of

close to 23 per cent. Other major players in terms of value share are Times Internet

(indiatimes.com), Yahoo Web services (yahoo.com), India Online (Rediff.com), Fabmall and

Sify.com. Fabmall online store offers about three million stock keeping units and attracts about

10,000 visitors per day and on average ships over 20,000 orders per month Non-store retailing,

Retailing in India, Euromonitor Report,, 2006. Researchers from Knight Frank India, a real

estate consultancy, cipher that rentals in established malls in top metros have jumped by 20-30 %

in the last six months. Generally retailers work out a rent-to-revenue ratio with developers at

which they feel they can sustain their business. Normally, this figure varies between 4% for a

hypermarket (that is, rent will constitute 4% of revenues) and 10% for a department store, to

nearly 20% for very niche retailers. But, at a monthly rate of Rs 200 per sq ft, a department store

might have to make Rs 2,000 per sq ft per month just to break even Daftari, Irshad and Sharma,

Samidha (2006), ―Runaway realty prices steal industry's smiles‖, Economic Times, September

19, Bangalore Edition. PricewaterhouseCoopers estimates that Indian retail will get USD 412 by

2011and majority of investment will be directed toward the two most popular retail formats:

hyper markets and supermarkets http://www.deccanherald.com.

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2.12. Statement of the problem

To discuss the importance of retailing in the Indian economy and sample area, to explain the

dimensions by which retailers can be classified for listing the major tasks involved in developing

a retail marketing strategy. To describe the major types of retail operations and to describe

future trends in retailing.

(―Why organized retailing is happening only in metro cities? And to study the determining

factors for the development‖)

2.13. Objectives:

1. To study the attractiveness of the cities differ in terms of culture, customer lifestyle,

financial ability and infrastructure.

2. To know unorganized retailer‘s perceived threat of organized retailer‘s entry is dependent

of the city.

3. To understand Influence of the organized retailer on the customer buying in terms of

quantity is independent of the city.

4. To study unorganized retailer‘s perceived threat of organized retailer‘s entry is

independent of level of competition prevailing in the local market.

5. To understand whether unorganized retailer‘s perceived change in consumer buying

power due to entry of organized retailer‘s entry is dependent of level of competition

prevailing in the local market.

6. To know location, opportunity, investment and advertisement influence risk perception of

unorganized retailer.

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7. To study opportunity for expansion of business is dependent of type of ownership of the

shop or not?

8. To know whether there is no equal opportunity across the cities for organized retailer to

enter.

9. To understand whether there is an association between factors influencing the expansion

and factors influencing the initial investments.

2.14. Formulation of Hypotheses:

1. H0: The attractiveness of the cities do not differ in terms of culture, customer lifestyle,

financial ability and infrastructure.

H1: The attractiveness of the cities differ in terms of culture, customer lifestyle, financial

ability and infrastructure.

2. H0: Unorganized retailer‘s perceived threat of organized retailer‘s entry is independent of

the city.

H1: Unorganised retailer‘s perceived threat of organized retailer‘s entry is dependent of

the city.

3. H0: Influence of the organized retailer on the customer buying in terms of quantity is

independent of the city

H1: Influence of the organized retailer on the customer buying in terms of quantity is

independent of the city

4. H0: Unorganised retailer‘s perceived threat of organized retailer‘s entry is independent of

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level of competition prevailing in the local market.

H1: Unorganised retailer‘s perceived threat of organized retailer‘s entry is independent of

level of competition prevailing in the local market.

5.H0: Unorganised retailer‘s perceived change in consumer buying power due to entry of

Organized retailer‘s entry is independent of level of competition prevailing in the local

market.

H1: Unorganized retailer‘s perceived change in consumer buying power due to entry of

Organized retailer‘s entry is dependent of level of competition prevailing in the local

market.

6.H0: Location, opportunity, investment and advertisement do not influence the risk

perception of unorganized retailer.

H1: Location, opportunity, investment and advertisement influence risk perception of

unorganized retailer.

7.H0: Opportunity for expansion of business is independent of type of ownership of the shop.

H1: Opportunity for expansion of business is dependent of type of ownership of the shop.

8. H0: There is equal opportunity across the cities for organized retailer to enter.

H1: There is no equal opportunity across the cities for organized retailer to enter.

9. H0: There is no association between factors influencing the expansion and factors

influencing the initial investments.

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H1: There is an association between factors influencing the expansion and factors

influencing the initial investments.

10. H0: There is no relationship between why existing unorganized retailers are not

Expanding and why organized retail giants are entering north Karnatak

H1 There is relationship between why existing unorganized retailers are not

Expanding and why organized retail giants are entering north Karnatak

2.15. Methodology

The following methods were used in the study:

A study of international experience particularly the recent developments in emerging

market economies;

Interviews of major players in organized retailing

Questionnaire-based survey of 500 unorganized retailers including

2.16. Limitation of the study

The study was purely based on the data given by the owners/executives of the retailing

companies/outlets who are generally suspicious of the motives of any investigation because of

fear of taxation and competition. In addition, due to non-availability of time series data with

respect to the business performance indicators over a period of time, only recent year‘s data

(2006-07) was used to analyze the performance. Therefore, the investigation was confronted with

various drawbacks in ascertaining the data. In case of companies having chain of outlets/units,

only one unit/outlet data was used to assess the overall objectives of the study. Hence, greater

care was taken to collect the data as accurately as possible.