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GROWTH OF INDIAN RETAIL SECTOR
TABLE OF CONTENT
1. Introduction 5
2. Research methodology 7
3. Critical review of literature 14
4. Issue related to FDI in India 33
5. Technology used in retail 45
6. Method for measuring performance business of retail 53
7. Promotional measures in retail 61
8. Out look of strategies 76
9. Branded FMCG 80
10. Challenges before retail sector in India 83
11. Finding & Analysis 87
12. Recommendation 92
13. Conclusion 101
14. Bibliography 104
15. References 106
16. Questionnaire 108
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INTRODUCTION
OBJECTIVE OF THE RESEARCH:
1. The objective of the study is to understand the retail industry of India as a
whole.
2. See the industry in the perspective of emerging Indian Economy.
3. The study aims at understanding the opportunities for various firms in this fast
growing sector of India
4. We also examine that what are the perception of consumers regarding this
Industry.
SCOPE OF THE STUDY:
The study will focus on the growth of retail industry particularly in the fast growing
economy of India. It will further put light on the consumer perception & their
changing dressing, eating, spending habit of Indian consumers, which has
brought shopping mall culture in the country. Moreover it will focus on the growing
opportunities for domestic companies as well as for foreign companies.
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CHAPTER-2
RESEARCH METHODOLOGY
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RESEARCH METHODOLOGY
A research process consists of stages or steps that guide the project from its
conception through the final analysis, recommendations and ultimate actions. The
research process provides a systematic, planned approach to the research
project and ensures that all aspects of the research project are consistent with
each other.
Research studies evolve through a series of steps, each representing the answer
to a key question.
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R e
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INTRODUCTION
This chapter aims to understand the research methodology establishing a
framework of evaluation and revaluation of primary and secondary research. The
techniques and concepts used during primary research in order to arrive at
findings, which are also dealt with and lead to a logical deduction towards the
analysis and results.
RESEARCH DESIGN
I propose to first conduct a intensive secondary research to understand the full
impact and implication of the retail industry, to review and critique the industry
norms and reports, on which certain issues shall be selected, which I feel remain
unanswered or liable to change, this shall be further taken up in the next stage of
exploratory research. This stage shall help me to restrict and select only the
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important question and issue, which inhabit growth and segmentation in the
industry.
The various tasks that I have undertaken in the research design process are:
Defining the information need.
Design the exploratory, descriptive and causal research.
Follow each step one by one and conclude the research.
RESEARCH PROCESS
The research process has four distinct yet interrelated steps for research analysis
It has a logical and hierarchical ordering:
Determination of information research problem.
Development of appropriate research design.
Execution of research design.
Communication of results.
Each step is viewed as a separate process that includes a combination of task ,
step and specific procedure. The steps undertake are logical, objective,
systematic, reliable, valid, impersonal and ongoing.
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EXPLORATORY RESEARCH
The data I used for exploratory research was
Primary Data
Secondary data
PRIMARY DATA
New data gathered to help solve the problem at hand. As compared to secondary
data which is previously gathered data. An example is information gathered by a
questionnaire. Qualitative or quantitative data that are newly collected in the
course of research, Consists of original information that comes from people and
includes information gathered from surveys, focus groups, independent
observations and test results. Data gathered by the researcher in the act of
conducting research. This is contrasted to secondary data which entails the use
of data gathered by someone other than the researcher information that is
obtained directly from first-hand sources by means of surveys, observation or
experimentation.
Primary data is basically collected by getting questionnaire filled by the
respondents.
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SECONDARY DATA
Information that already exists somewhere, having been collected for another
purpose. Sources include census reports, trade publications, and subscription
services. Data that have already been collected and published for another
research project (other than the one at hand). There are two types of secondary
data: internal and external secondary data. Information compiled inside or outside
the organization for some purpose other than the current investigation. Data that
have already been collected for some purpose other than the current study.
Researching information which has already been published. Market information
compiled for purposes other than the current research effort; it can be internal
data, such as existing sales-tracking information, or it can be research conducted
by someone else, such as a market research company or the U.S. government.
Published, already available data that comes from pre-existing sets of
information, like medical records, vital statistics, prior research studies and
archival data.
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DATA COLLECTION
Data collection took place with the help of filling of questionnaires. The
questionnaire method has come to the more widely used and economical means
of data collection. The common factor in all varieties of the questionnaire method
is this reliance on verbal responses to questions, written or oral. I found it
essential to make sure the questionnaire was easy to read and understand to all
spectrums of people in the sample. It was also important as researcher to respect
the samples time and energy hence the questionnaire was designed in such a
way, that its administration would not exceed 4-5 mins. These questionnaires
were personally administered.
The first hand information was collected by making the people fill the
questionnaires. The primary data collected by directly interacting with the people.
The respondents were contacted at shopping malls, markets, places that were
near to showrooms of the consumer durable products etc. The data was
collected by interacting with 108 respondents who filled the questionnaires and
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gave me the required necessary information. The respondents consisted of house
wives, students, business men, professionals etc. the required information was
collected by directly interacting with these respondents.
DETERMINATION THE SAMPLE PLAN AND SAMPLE SIZE
TARGET POPULATION
It is a description of the characteristics of that group of people from whom a
course is intended. It attempts to describe them as they are rather than as the
describer would like them to be. Also called the audience the audience to be
served by our project includes key demographic information (i.e.; age, sex
etc.).The specific population intended as beneficiaries of a program. This will be
either all or a subset of potential users, such as adolescents, women, rural
residents, or the residents of a particular geographic area. Topic areas:
Governance, Accountability and Evaluation, Operations Management and
Leadership. A population to be reached through some action or intervention; may
refer to groups with specific demographic or geographic characteristics. The
group of people you are trying to reach with a particular strategy or activity. The
target population is the population I want to make conclusions about. In an ideal
situation, the sampling frames to matches the target population. A specific
resource set that is the object or target of investigation. The audience defined in
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age, background, ability, and preferences, among other things, for which a given
course of instruction is intended.
I have selected the sample trough Simple random Sampling.
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SAMPLE SIZE
I have targeted 50 people in the age group above 18 years for the purpose of the
research. The sample size is influenced by the target population. The target
population represents the Gorakhpur regions.The people were from different
professional backgrounds.
SAMPLING TECHNIQUE
Simple random sampling technique has been used to select the sample. In this
sampling technique we select the respondents randomly.
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CHAPTER-3
CRITICAL REVIEW OF THE LITERATURE
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CRITICAL REVIEW OF THE LITERATURE
RETAIL SECTOR: AN INTRODUCTION
SIZE
India is one of the ten largest retail markets in the world
Retail sales were $206 billion in 2007, over 28% of GDP
Organized Retail constitutes only 4.5% of total retail sales - about $6.4
billion p.a.
However organized retail has been growing at over 24% p.a in the last 5
years
STRUCTURE
The Indian Retail sector is highly fragmented: mostly owner-run Mom and Pop
outlets .Over 12 million retail outlets
Average outlet size < 500 sq.ft
There are a few medium sized Indian retail chains like Pantaloon, Shoppers
Stop, Food world (RPG Group) and Westside (Tata Group) - all growing rapidly
Mainly in the apparel and food & grocery segments
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Dairy Farm, Metro, Shoprite and Marks & Spencer are the only major
international retail chains in India: Each has a marginal presence through either
franchisee or wholesale formats
POLICY
100% FDI is allowed in Cash and Carry Wholesale formats. Franchisee
arrangements are also permitted in retail trade.
FDI upto 51% is permissible in the retail trade of single brand products
Top Players in the Retail Industry
Players Revenue
s
Space Format
Pantaloon Retail 150 1,000,000 F&G, SpecialtyRPG Retail 135 590,000 F&G, SpecialtyShoppers Stop 100 740,000 Specialty RetailLifestyle International 53 325,000 Specialty RetailViveks Ltd. 46 150,000 Consumer
Durables
Trent (Tata) 38 270,000 F&G, Specialty
Note: Revenues in ($ million), Space: Sq. ft.
OUTLOOK
The overall retail market is expected to grow three-fold in the next 10 years from
$206 billion today to about $660 billion by 2015
India is expected to be among the top 5 retail markets in the world in 10 years
Organised retail is expected to grow rapidly to reach $100 billion
by 2015
Likely to account for 12-15% of total retail sales by 2015
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POTENTIAL
The high growth projected in domestic retail demand will be fuelled by The
migration of population to higher income segments with increasing per capita
incomes An increase in urbanization Changing consumer attitudes especially the
increasing use of credit cards The growth of the population in the 20 to 49 years
age band There is retail opportunity in most product categories and for all types of
formats Food and Grocery: The largest category; largely unorganized today
Home Improvement and Consumer Durables: Over 20% p.a. CAGR estimated in
the next 10 years Apparel and Eating Out: 13% p.a. CAGR projected over 10
years Opportunities for investment in supply chain infrastructure: Cold chain and
logistics India also has significant potential to emerge as a sourcing base for a
wide variety of goods for international retail companies Many international
retailers including Wal-Mart, GAP, JC Penney etc. are already procuring from
India
.
Analysts expects the Indian retail growth process to take a decade since there is
a large population of one billion that needs to be slowly reached and this
population is spread across six hundred thousand villages. The large urban
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population of India is about three hundred million and spread across about a
couple of hundred large cities and smaller towns. Organized retail is expected to
home in on this proportion first in the next five to ten years. At present most of the
large retail activity and brand building is focused on about twenty Indian cities,
each of which has a population of one million.
Indian retail will slowly expand from the small dots that it represents across the
Indian map and become large spots and areas over the next several years.
Indian government regulations are going through a long and meandering debate
on whether or not India should allow foreign retail chains to come in and if yes,
then how they need to be regulated and controlled. Most see retail as a bastion
that will fully liberalize and globalize India and threaten large employment that is
presently provided by the small unorganized retail network that is present all
across Indian districts including the small towns and villages. The new organized
format will mean a lot of change for the network, the consumers and the product
vendors and this is being analyzed and considered carefully by the government.
The government knows that opening up the retail sector will create a lot of
changes in cultural and employment patterns as well as sound the death knell for
several hundreds of thousands of small and tiny enterprises that are involved in
retailing and manufacturing of products for local markets.
This large change is however unlikely to be possible to stem in the long run. India
will slowly open up and moderate the change but the new retailing experience
that has already been sampled with great success is expected to expand slowly
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but surely till it covers the entire geography of the country.
India map looks at retail as a large area of interest for its Indian and international
audience. India opens this section with a detailed analysis of the retail sector. We
plan a large directory for the retail sector and also plan to bring in expert
commentary and analysis that will help demystify Indian retail and help provide
clarity and substance for our readership.
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RETAIL SECTOR : IN 2007
Indian retailing industry has seen phenomenal growth in the last five years (2001-
2006). Organized retailing has finally emerged from the shadows of unorganized
retailing and is contributing significantly to the growth of Indian retail sector.
RNCOS India Retail Sector Analysis (2006-2007) report helps clients to
analyze the opportunities and factors critical to the success of retail industry in
India.
Key Findings
- Organized retail will form 10% of total retailing by the end of this decade
(2010).
- From 2006 to 2010, the organized sector will grow at the CAGR of around
49.53% per annum.
- Cultural and regional differences in India are the biggest challenges in front of
retailers. This factor deters the retailers in India from adopting a single retail
format.
- Hypermarket is emerging as the most favorable format for the time being in
India.
- The arrival of multinationals will further push the growth of hypermarket format,
as it is the best way to compete with unorganized retailing in India.
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India represents an economic opportunity on a massive scale, both as a global
base and as a domestic market. Indian Retail sector consists of small family-
owned stores, located in residential areas, with a shop floor of less than 500
square feet. At present the organized sector accounts for only 2 to 4% of the total
market although this is expected to rise by 20 to 25% on YOY basis.
Retail growth in the coming five years is expected to be stronger than GDP
growth, driven by changing lifestyles and by strong income growth, which in turn
will be supported by favorable demographic patterns and the extent to which
organized retailers succeed in reaching lower down the income scale to reach
potential consumers towards the bottom of the consumer pyramid. Growing
consumer credit will also help in boosting consumer demand.
The structure of retailing will also develop rapidly. Shopping malls are becoming
increasingly common in large cities, and announced development plans project at
least 150 new shopping malls by 2008. The number of department stores is
growing much faster than overall retail, at an annual 24%. Supermarkets have
been taking an increasing share of general food and grocery trade over the last
two decades.
However, Distribution continues to improve, but it still remains a major
inefficiency. Poor quality of infrastructure, coupled with poor quality of the
distribution sector, results in logistics costs that are very high as a proportion of
GDP, and inventories, which have to be maintained at an unusually high level.
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Distribution and marketing is a huge cost in Indian consumer markets. Its a lot
easier to cut manufacturing costs than it is to cut distribution and marketing costs.
Also, government has relaxed regulatory controls on foreign direct investment
(FDI) considerably in recent years, while retailing currently remains closed to FDI.
However, the Indian government has indicated in 2005 that liberalization of direct
investment in retailing is under active consideration. It has allowed 51% FDI in
single brand retail.
The next cycle of change in Indian consumer markets will be the arrival of foreign
players in consumer retailing. Although FDI remains highly restricted in retailing,
most companies believe that will not be for long. Indian companies know Indian
markets better, but foreign players will come in and challenge the locals by sheer
cash power, the power to drive down prices. That will be the coming struggle.
The year 2006 marked the beginning of the 'retail revolution' through the entry of
big names such as Reliance with the announcement of huge investments. But
what really grabbed attention was Bharti Group's announcement of its tie-up with
the world's largest retail chain, Wal-Mart.
Before Reliance opened its first supermarket in Hyderabad in November, with an
investment of around $5.5 billion, the only other big player was the Future Group
with its retailing arm, Pantaloon Retail India Ltd.
The Rs 4,000-crore Pantaloon Retail also announced an investment of $1 billion
to open 1,000 outlets in the near future, an answer to the aggressive growth plans
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of Reliance. "The year 2006 has assumed great significance in modern retailing
as Reliance announced a pan-India network of outlets in multiple formats in the
coming years," said Mr. Gibson G. Vedamani, CEO, Retailers' Association of
India.
"The most recent noteworthy development was the announcement of the Bharti-
Wal-Mart joint venture. This deal is likely to reinforce confidence levels and will be
viewed as a positive move by foreign retailers. In fact, it is likely to propel retailers
to move faster into India. The entry of Wal-Mart could result in more structured
deals within a regulatory framework of the Government's policy. International
retailers know they cannot afford to not have operations in India. They are
viewing the market with much interest and with the current regulatory framework,
have put strategies on hold," said Mr N. V. Sivakumar, Leader - Retail and
Consumer Practice, PricewaterhouseCoopers.
The year also saw big players such as the Aditya Birla Group announce their
entry into retail. Tata and Woolworths entered into a technical collaboration and
launched household appliances and home electronics store, Croma. The Raheja
Group opened Hypercity, a hypermarket, in Mumbai. Chennai-based discount
chain Subhiksha closed the year with nearly 500 outlets across India, making it
the largest in the discount format.
As far as formats are concerned, hypermarkets, supermarkets and discount
stores gained prominence. In fact, it won't be wrong to say that 2006 was the year
for FMCG retailing. And, as analysts predict, FMCG retailing is here not only to
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stay, but also to lead from the front. However, in the category, it is discount
retailing that has gained immense importance, where Subhiksha seems to have
beaten others in the race.
Now starting in 2007 the big players of retail going to open hyper market,
entertainment zone, retail mart for electronic or consumer durable items etc. They
invest huge money on these projects. These project also see as a revolution in
the field of Mall Culture.
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Globalization: Growing media penetration is leading to a convergence of
aspirations of various classes of consumers, bridging the rural-urban
divide. The modern consumer cannot be satisfied by any product or
service that is lesser in quality than the best offered in any other place on
the globe.
Till 1980s, India knew only kirana stores. Things started to change slowly after
that, with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim
opening their company owned outlets. Later on, Titan, maker of premium
watches, successfully created an organized retailing concept in India by
establishing a series of elegant showrooms.
ORGANIZED RETAILING:
Only 4 per cent of the retail trade in India belonged to organised retail. It covered
items such as apparel, grocery, music, electronics, automobiles and financial
services. This is inconsequential compared to 20 per cent in China, 40 per cent in
Thailand and 80 per cent in the United States. The emergence of organised retail
in India is, moreover, so far restricted to the top 15 cities. The strength of
organised retailing lies in the ability to source directly from the manufacturers due
to increased bargaining power achieved through large-scale operation. Organised
retail chains can get bulk discounts on large purchases and reduce cost by
eliminating middlemen and by reducing the supply chain. However, the potential
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benefits of lower prices is not evident in the early stages because modern
retailing tends to concentrate on the upper segment of the market where
consumers are willing to pay higher prices for convenience and a superior
shopping environment.
Organised retailing is often run on the principle of franchising. The franchiser
allows a local businessman, a franchisee, to set up a retail outlet using its name
and methods as a joint venture on a 50:50 paid up capital basis. The franchiser
also provides training, equipment, quality control and national advertising. In
exchange, it receives fees and a share of profits. Organised retailing, moreover,
has multiple formats like discounters, hypermarkets, convenience stores, and
small outlets and warehouse clubs. The special advantages of organised retailing
is:
Enhancing quality through skilled processing, grading and delivery of
goods.
Lower price through better expertise in managing back-end activities such
as sourcing and inventory management as well as the ability to strengthen
the front-end functions of merchandising, promotions and customer
services.
Creating a level playing field for small and medium enterprises vis--vis the
large manufacturers.
Higher productivity per worker and better job opportunities.
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The growth of organised retailing is thus expected to lead to value migration from
wholesale trade to retail trade.
1999 2002 2007Total Retail (in billion INR) 7000 8250 11000Organized Retail (in billion INR) 50 150 450% Share of Organized Retail 0.70% 1.80% 4.5%
Five Reasons why Indian Organized Retail is at the brink of Revolution:
Scalable and Profitable Retail Models are well established for most of the
categories.
Rapid Evolution of New-age Young Indian Consumers
Retail Space is no more a constraint for growth
Partnering among Brands, retailers, franchisees, investors and malls
India is on the radar of Global Retailers Suppliers.
RETAIL FORMAT:
Broadly, the organized retail sector can be divided into 2 segments:
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In-store Retailers: Operate through fixed point of sale outlets located
and designed to attract a high volume of walk-in customers. Also
referred to as brick-and mortar format.
Non-store Retailers: Reach out to the customers at their homes or
offices through direct selling, tale marketing and e-commerce.
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Major formats of In-store retailers have been listed in Table below: -
FORMAT DESCRIPTION VALUE PROPOSITION
Branded Stores Exclusive showrooms
either owned or
franchised out by a
manufacturer.
Complete range available
for a given brand,
Certified product quality
Specialty Stores (Multi-
Brand)
Focus on a specific
consumer need, carry
most of the brands
available
Greater choice to the
consumer, comparison
between brands possible.
Department Stores Large stores having a
wide variety of products,
organized into different
departments, such as
clothing, house wares,
toys, etc.
One stop shop catering
to varied consumer
needs, service as
differentiator.
Supermarkets Extremely large self-
services retail outlets.
One stop shop catering
to varied consumer
needs.Discount Stores Stores offering discounts
on the retail price through
selling high volumes and
reaping the economies of
scale.
Low prices
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Hyper-mart Larger than a
Supermarket, sometimes
with a warehouse
appearance, generally
located in quieter parts of
city
Low prices, vast choice
available including
services as cafeterias.
Convenience Stores Small self-service
formats located in
crowded urban areas.
Convenient location and
extended operating
hours.
Shopping Malls An enclosure having
different formats of in-
store retailers all under
one roof
Variety of shops available
close to each other.
Of the Top-200 Global Retailers, 21% of retailers fall in the specialty stores
category, followed by 18% in supermarket, 12% in department and 9% each in
hypermarket and discount stores.
RETAIL FORMATS IN INDIA:
Indian retail formats can be classified into two distinct categories:
(1) Traditional
(2) Modern
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Traditional Formats include: -
Kiranas: Traditional Mom and Pop Stores
Street Markets
Kiosks
Exclusive / Multiple Brand Outlets
Modern Formats include: -
Supermarkets such as Food world
Hypermarkets such as Big Bazaar, Giant, Shop rite, Star
Company Owned / Operated such as Bata, Sony
Department stores such as Shoppers stop, Lifestyle, Pantaloons,
Pyramids, Trent
INDIAN RETAIL ESTATE BY 2007 :
From 95 currently operational shopping centres with approximately 22-
million sq.ft space, India to have over 375 shopping centres/ Malls
covering over 90 million sq.ft quality retail space by 2007 end
50 hypermarkets, 305 large department stores, 1500 supermarkets and
over 10,000 new outlets under construction
Additional Retail space to add INR 300 billion of business to organised
retail.
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WHOLESALE TRADING:
Is another area, which has potential for rapid growth? German giant Metro AG
and South African Shop rite Holdings have already made headway in this
segment by setting up stores selling merchandise on a wholesale basis in
Bangalore and Mumbai respectively. These new-format cash-and-carry stores
attract large volumes from a sizeable number of retailers who do not have to
maintain relationships with multiple suppliers for all their needs.
Present Scenario Of Retail Sector In India
Retailing today is not only about selling at the shop, but also about surveying the
market, offering choice and experience to consumers, competitive prices and
retaining consumers as well.The Indian retail industry is no more nascent today.
There has been a significant change in retail trading over the years, from small
kiranawalas in the vicinity to big super markets; a transition is happening from the
traditional retail sector to organized retailing. The unorganized sector still holds a
dominant position in this industry. The organized segment holds just about 1.2% of
the current US$ 245 billion retail market, which is expected to reach about US $ 385
billion by the middle of this decade.
With consumers looking at convenience with multiplicity of choice under one roof and
expectations evolving over time, consumer demand is truly the driving force for
organized retailing in the country. Food and beverages form the main chunk of the
retail market. They are followed by apparel and footwear. The Indian textile industry,
the backbone of the apparel segment, has a large share of the Indian economy,
accounting for over 20% of industrial production as well as providing direct and
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indirect employment to around 65 million people.
Despite the retail store density in India with regard to population being the largest, it
is estimated that over 90% of the stores are less than 500 sq. ft in size. Industry
estimates put the number of retail outlets at 12 million. This is clearly indicative of
small-shop ownership crowding the unorganized segment of retailing. While this
fragmented market structure does pose significant challenges for organized retailing,
potential does exist if modern information and supply chain management systems are
deployed to support the development of convenience shops that match customer
expectations.
POTENTIAL FOR ALL FORMATS TO THRIVE:
Most of the global powerhouses in the retailing sector such as Wal-Mart,
Carrefour, Tesco etc have adopted multi-format and multi-product strategies in
order to customize their product offering for distinct target segments. Similar
trends are likely to be exhibited in India as all formats present prospects for
growth.
Further, with the emergence of larger store formats like superstores and
hypermarkets in countries like UK, France, Germany, Spain since the 1980s and
Eastern Europe more recently, traditional food retailers have been able to stock
more extensive non-food ranges. In fact, Tesco, UK's leading grocer, has become
the number one apparel retailer in the Czech Republic and also a major player in
Hungary apart from being one of the fastest growing clothing retailers in the UK.
Together with its rival, Wal-Mart-owned ASDA, Tesco is one of the food sector's
most successful exponents of clothing in Europe.
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CHAPTER - 4
ISSUES RELATED TO FDI IN RETAIL IN INDIA
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ISSUES RELATED TO FDI IN RETAIL IN INDIA
Traditionally, the retailing sector in India has been characterised by the presence
of a large number of small, unorganised retailers, popularly referred to as mom-
and-pop shops or kirana stores. The unorganised sector still dominates the retail
sector, with the organised sector accounting for only 3%. Retailing is one of the
few sectors where foreign direct investment (FDI) is not allowed. But India is
emerging as an attractive destination for FDI in retailing, evoking considerable
protest from trading associations and other stakeholders. The government
announced a partial opening of the sector by announcing 51% FDI in single-
brand retailing last week. Closer Look at some of the issues related to FDI in
retailing.
Was the retailing sector never opened to FDI?
Prior to 1997, there were no regulations restricting the entry of foreign players.
Nanz and Spencers are two major companies who were granted permission to
sell products directly to customers. In 1997, it was decided that FDI would not be
allowed for mere trading as it would lead to the outflow of foreign exchange, drive
out the unorganized retailers from business and increase unemployment.
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Do other countries allow FDI in retailing?
India is one of the few countries where FDI is not allowed in retailing. Almost all
major developed and developing countries have allowed it. Some have imposed
restrictions such as minimum capital requirements, sourcing conditions,
investment in supply chain, etc, while others have opened the sector in a phased
manner to allow domestic retailers to adjust to the changes.
Will opening the sector result in loss of jobs?
Its an aspect thats been greatly debated. Theres a view that modern trade will
unleash opportunities such as non-agricultural employment and better quality of
living for the existing agricultural society. Others say that by reducing the number
of intermediaries, middlemen etc, organised retailing will lead to some job
displacement. But this, they insist, will be compensated for by creation of jobs in
allied sectors such as the food processing industries. Currently, the retail industry
is the second largest employer, after agriculture, and it is estimated that the
sector has the potential to create eight million jobs.
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Will FDI in retail adversely impact kirana stores?
At present, mom-and-pop stores cater to 97% of the total market. They have
unique advantages, like indigenous processes, skills in retaining customers,
proximity, convenience and services. However, global retailers investing in new
markets have not hampered local retailers. In China, Carrefour, the largest
foreign retailer, has 68 hypermarkets and Wal-Mart 47. Despite this, domestic
competitors hold more than 90% of the market.
In India, of the 12 million retail outlets, only about 3.5 million are in urban areas,
where organised retail is likely to be restricted to. So only about 3% (about one
lakh) of the outlets in the midmarket range would be potentially affected.
Has FDI restriction acted as an entry barrier?
Not really. Many foreign players have entered the Indian market through different
routes. But the restriction has resulted in an uncertain regulatory environment and
prevented business expansion of both domestic organised retailers and foreign
retailers.
What are the other routes of entry?
Foreign players can enter the Indian trading sector through routes like
manufacturing and local sourcing; franchising; test- marketing; wholesale cash-
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and-carry; distribution and through special permission. Franchising is the most
preferred mode through which foreign players have entered the Indian market.
Fast-food chains like Pizza Hut, McDonalds and brands such as Lacoste, Mango,
Nike etc ,have entered the Indian market through this route.
Similarly, companies such as Swarovski and Hugo Boss have set up distribution
offices in India and these offices supply products, which the company imports to
local Indian retailers. In the case of test-marketing, FIPB allows foreign
companies to test-market products for a two-year period. Direct selling companies
like Amway and Oriflame entered the Indian market through this route.
What is single-brand retailing?
While the finer guidelines as to what constitutes single-brand retailing are yet to
come, its likely that under this route, retailers would deal with a single brand
catering to a select clientele. Though such a classification does not exist
anywhere in the world, in India such a decision was taken as a first step towards
opening up the sector and also to probably allay the apprehensions of those who
have been opposing FDI in retail.
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CHAPTER-5
TECHNOLOGY USED IN RETAIL
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Technology Used in Retail
Over the years as the consumer demand increased and the retailers geared up to
meet this increase, technology evolved rapidly to support this growth. The
hardware and software tools that have now become almost essential for retailing
can be into 3 broad categories.
Customer Interfacing Systems
Bar Coding and Scanners
Point of sale systems use scanners and bar coding to identify an item, use
pre-stored data to calculate the cost and generate the total bill for a client.
Tunnel Scanning is a new concept where the consumer pushes the full
shopping cart through an electronic gate to the point of sale. In a matter of
seconds, the items in the cart are hit with laser beams and scanned. All
that the consumer has to do is to pay for the goods.
Payment
Payment through credit cards has become quite widespread and this
enables a fast and easy payment process. Electronic cheque conversion, a
recent development in this area, processes a cheque electronically by
transmitting transaction information to the retailer and consumer's bank.
Rather than manually process a cheque, the retailer voids it and hands it
back to the consumer along with a receipt, having digitally captured and
stored the image of the cheque, which makes the process very fast.
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Internet
Internet is also rapidly evolving as a customer interface, removing the need
of a consumer physically visiting the store.
Operation Support Systems
ERP System
Various ERP vendors have developed retail-specific systems which help in
integrating all the functions from warehousing to distribution, front and
back office store systems and merchandising. An integrated supply chain
helps the retailer in maintaining his stocks, getting his supplies on time,
preventing stock-outs and thus reducing his costs, while servicing the
customer better.
CRM Systems
The rise of loyalty programs, mail order and the Internet has provided
retailers with real access to consumer data. Data warehousing & mining
technologies offers retailers the tools they need to make sense of their
consumer data and apply it to business. This, along with the various
available CRM (Customer Relationship Management) Systems, allows the
retailers to study the purchase behavior of consumers in detail and grow
the value of individual consumers to their businesses.
Advanced Planning and Scheduling Systems
APS systems can provide improved control across the supply chain, all the
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way from raw material suppliers right through to the retail shelf. These APS
packages complement existing (but often limited) ERP packages. They
enable consolidation of activities such as long term budgeting, monthly
forecasting, weekly factory scheduling and daily distribution scheduling into
one overall planning process using a single set of data.
Leading manufactures, distributors and retailers and considering APS
packages such as those from i2, Manugistics, Bann, MerciaLincs and
Stirling-Douglas.
Strategic Decision Support Systems
Store Site Location
Demographics and buying patterns of residents of an area can be used to
compare various possible sites for opening new stores. Today, software
packages are helping retailers not only in their locational decisions but in
decisions regarding store sizing and floor-spaces as well.
Visual Merchandising
The decision on how to place & stack items in a store is no more taken on
the gut feel of the store manager. A larger number of visual merchandising
tools are available to him to evaluate the impact of his stacking options.
The SPACEMAN Store Suit from AC Neilsen and ModaCAD are example
of products helping in modeling a retail store design.
Investment Potential
Despite the huge presence of the unorganized sector, the Indian retail
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industry is attractive for international players. It is favoured over China's among
the developing countries due to a slew of laws in the communist country at
various levels. Though the market hasn't seen big time players of the developed
nations yet, the fact that Indian per capita retail space is among the lowest, is
expected to provoke people to look at retail as a potential business arena. The
growth of integrated shopping malls, retail chains and multi-brand outlets is
evidence of consumer behaviour being favourable to the growing organized
segment of the business. Space, ambience and convenience are beginning to
play an important role in drawing customers.
With the Indian per capita income on the rise and the distribution of
consumption expenditure expected to remain fairly stable, the current segments
of food and apparel is likely to remain attractive. Upgradation of traditional
grocery stores to present quality food products in ways and methods adopted in
North America and Europe can help in communicating value and attracting
customers.
Though the Indian retail industry is still a "protected industry" from the
stand point of foreign direct investment (FDI), the government is expected to
provide some flexibility on this front. Though FDI can help generate employment
in this sector, it is likely to pose stiff competition for existing small businesses.
Unlike the country's FDI investment objective of technology transfer and export
promotion of the 1980s, today's infusion of capital - specifically in the retail
segment -- can bring to the table issues on size of investment, actual inflows and
domestic company take-overs. Given the constraints, FDI should be viewed as a
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developmental resource that can help in restructuring the industry. It should be
aimed at filling up the resource and technology gaps in the retail segment.
While the differing tax and licensing systems across states could raise
some issues when organized retailers expand nationally, this could well protect
the interests of regional retailers. But the key to success is to build a fairly
extensive network of stores across the country to enable e-commerce
transactions. This in the emerging scenario would help retailers to target a wider
audience and maximize returns. Strength in physical distribution will remain the
backbone of any retail arrangement; however, ongoing investment in bandwidth,
development of internet facilities, and increasing awareness of IT among the
literate and educated population is expected to create a large base of shoppers.
The minimal contribution of the organized sector is a profitable direction for
potential investors. The movement of more and more people up the income
brackets also indicates a good market potential. Labour cost differential, the
removal of investment restrictions and the rationalization of the tax structure can
bring about best practices and the latest offerings to the Indian retail industry.
Growth opportunities for the organized sector can be propelled through land
reforms as well as uniformity in tax structure, which reduces the cost advantage
of the unorganized sector. These measures, if rightly implemented, would provide
a competitive environment for the Indian retail industry. Some of the facts about
investment
Potential For Investment: The total estimated Investment Opportunity in
the retail sector is around US$ 5-6 Billion in the Next five years.
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Location: with modern retail formats having made their foray into the top
cities namely Hyderabad, Coimbatore, Ahmedabad, Mumbai, Pune,
Chennai, Bangalore, Delhi, Nagpur there exists tremendous potential in
two tier towns over the next 5 years.
Sectors with High Growth Potential: Certain segments that promise a
high growth are
Food and Grocery (91 per cent)
Clothing (55 per cent)
Furniture and Fixtures (27 per cent)
Pharmacy (27 per cent)
Durables, Footwear & Leather, Watch & Jewellery (18 per cent).
Fastest Growing Formats: Some of the formats that offer good growth
potential are:
Speciality and Super Market (45 per cent)
Hyper Market (36 per cent)
Discount stores (27 per cent)
Department Stores (18 per cent)
Convenience Stores and E-R Retailing (9 per cent)
Supply Chain Infrastructure: Supply chain infrastructure in terms of cold
chain and Logistics.
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Cheap Consumer Credit
CHAPTER -6
METHODS FOR MEASURING THE
PERFORMANCE BUSINESS OF RETAIL
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Methods For Measuring The performance Business of
Retail
Managing any business, whether brick-and-mortar, catalogue, or on the
Web, requires measuring what matters - the business performance. From
these, one derives key metrics to measure and analyse the firm's business
performance. The need for the measurement of these metrics stems from
three primary sources:
Sales and revenue targets.
Simply put, retail, like any other business, must make a profit. Retail
performance measures not only aid in analyzing the sales performance in
greater detail but also are an invaluable aid in defining sales and revenue
targets.
Historic performance.
The ability to compare a retail store's present performance relative to its
past performance provides valuable trend information.
Benchmarking.
It is not enough to know your own business' performance; it is also critical
to know the performance of your competitors. Revenues may be less than
expected, but if competitors have faired worse, it may change your
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interpretation of the situation. Apart from comparison within a sector,
structured performance measurement also enables across-sector
comparisons and learning..
The following are some of the performance measures in the retail sector:
Walk-ins and Conversion
Walk-ins is the measure of number of people who walk into the stores
within a pre-determined period of time (daily, hourly, monthly). Conversion
is the percentage of customers who actually buy from the store.
Conversion = (No. of Customers who make a transaction) * 100/ walk-ins
The conversion figure is the benchmark of stores performance when
evaluated along with the Average Transaction Value. There could be a
scenario wherein due to high value of merchandise in a store, the
conversion is low but the average transaction value is high. Eg: jewelry
stores
Average Transaction Value
Average Transaction Value means the value worth of goods purchased by
the customers.
It is calculated as:
Avg. Transaction Value= Avg. Sales per day/ (Avg.daily walk in * Avg.
Conversion %)
The ratio gives an indication of how much each customer on an average
spends in the store. Useful for comparison and analysing if this needs to
be increased.
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Display to stock ratio
The display to stock ratio means the amount of backroom inventory
maintained as a backbone to that displayed in the store. It is calculated as
follows:
Display to stock ratio = No of pcs of an SKU on display/ No of pcs of the
SKU in backroom stock
Typically this ratio is maintained higher for the "Fast-moving" SKUs(those
with higher sales and experience more stock outs). This ratio should be
kept at an optimum level after considering the sales trend of the SKU, the
minimum coverage levels required for an item, display rules, so that
unnecessary investment in Inventory is avoided. It should also not be kept
too low or else there would be a scenario of frequent stock outs for the
SKU
Sales per sq. ft.
Sales per square foot is a very important retail performance benchmarking
ratio. It is the sales revenue generated per square foot of Retail space.
It is calculated as:
Sales per Sq.ft = Gross Sales/ Retail space in sq. ft
Since cost of Retail space is a significant cost element in the retail
business, this ratio is instrumental in gauging the store sales performance.
Sales per employee
Sales per employee is indicative of the performance of the sales staff. This
would in turn enable the decision making for their appraisals and further
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training. It would further indicate whether or not the store is adequately
staffed.
Sales per employee = Gross Sales / Strength of sales staff
A motivated sales team is one of the keys to better conversion in the
outlet. This ratio therefore benchmarks the sales team performance and
also aids in fixing their sales targets.
Inventory Turnover rate
Inventory Turnover: The inventory turnover ratio measures the number of
times during a year that a company replaces its inventory. The turnover is
only meaningful when comparing other firms in the industry or a company's
prior inventory turnover. Differences in turnover rates result from product
characteristics and differing operating characteristics within an industry.
The inventory turnover rate is calculated as follows:
Inventory Turnover = Cost of goods sold/ (Average inventory at cost
OR = Sales / Average inventory at sales
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The higher the inventory turnover rate means the more efficiently a
company is able to grow sales volume. There are several things to keep in
mind when calculating turnover rates:
1) Only consider cost of goods sold from stock sales filled from warehouse
inventory. Do not include on-stock items and direct shipments. Sure, these
sales are important, but don't involve your warehouse stock (your
investment in inventory).
2) The cost of goods sold figure in the formula includes transfers of
stocked products to other branches and quantities of these products used
for internal purposes such as repairs and assemblies.
3) Inventory turnover is based on the cost of items (what you paid for
them) not sales dollars (what you sold them for).
Inventory turnover depends on the average value of stocked inventory. To
determine your average inventory investment: 1) Calculate the total value
of every product in inventory (quantity on hand times cost) every month, on
the same day of the month. Be consistent in using the same cost basis
(average cost, last cost, replacement cost, etc.) to calculate both the cost
of goods sold and average inventory investment.
2) If your inventory levels fluctuate throughout the month, calculate your
total inventory value on the first and 15th of every month.
3) Determine the average inventory value by averaging all inventory
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valuations recorded during the past 12 months.
Gross margin per sq. ft.
Gross Margin per square ft is indicative of the profitability of the Retail space.
It is calculated as:
Gross margin per sq ft = Gross margin / Area of retail space
GMROI
In simple terms GMROI (Gross Margin Return On Inventory) tells us how
many times over a year we get our stock investment returned with a given
margin . In simple terms it may be defined as 'how hard the inventory is
working for the profitability of the business'. It is calculated as follows:
GMROI = (Gross Margin% / (100% -Gross Margin%)) x (52/weeks cover)
So a product with a gross margin of 50% and an average 26 weeks cover
would give us a G.M.R.O.I of 2.0
(50/50) x (52/26) = 1 x 2 = 2.0
If we compare this with a product with a gross margin of 40% but an
average of 17 weeks cover we see that the G.M.R.O.I. is also 2.0
(40/60) x (52/17) = 2/3 x 3.01 = 2.0
Simple gross margin measurement would indicate that the first of these
products was a better investment. GMROI shows us a fuller picture that
shows that the second product provided an equal return on stock invested.
We can see from this that we can use G.M.R.O.I. as a powerful measure
of historical performance, but it has an equally powerful application in
merchandise planning.
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In this instance we might well apply the measure at a summary level,
perhaps sub product group by branch, to give us an indication of those sub
product groups that have greater potential than others in specific branches.
From this we can make better informed decisions as to which should have
more space allocated to them, be better supported by stock or have
ranges expanded or contracted. For example, products with low cover and
high gross margin will probably have experienced stock outs and
fragmentation of ranges, and were therefore not fully exploited in terms of
their ability to generate profit. This combination would result in a relatively
high G.M.R.O.I..
Assuming that this performance were not the result of a fashion "blip", it
would make sense to increase the stock support for this area and maybe
increase the space allocated to it. We might also look at increasing the
number of options available.
Conversely a product with high cover and a low gross margin was
obviously over supported with stock, and failed to generate a reasonable
return in spite of this. It would therefore make sense to reduce its space
allocation ,and to channel the stock investment to a more appropriate area,
maybe reducing range width at the same time. In extreme cases we might
decide to remove the product area from the range altogether.
The adoption and analysis of the illustrated measures enable in-depth sales
analysis not only at the overall level but also at the category and sub-category
levels. This "drill-down" analysis can be effectively used to evaluate the
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performance of retail outlets, product categories, promotions as well as the
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CHAPTER 7
PROMOTIONAL MEASURES IN RETAIL SECTOR
AND ITS EFFECTS
Promotional Measures In Retail Sector And Its Effects
As competition heats up in Indian retail, major retailers are attracting more
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customers through quirky "event packages"/attractions or price promotions.
Customers are encouraged to celebrate a special occasion with a celebrity as
well as to spend money in the stores. It comprises specifications for a marketing
operation that is limited in time and that is meant to draw increased attention to
the enterprise (the retail outlet or the retail chain) in its sales market or the
influencing trading area. As a rule, it has a sales-promoting effect.
Setting objectives
The launch of promotional activity for a store requires creative handling of one of
the above ways of handling retail promotions. The most important factor to be
considered for retail promotion is the objective for promotion. If Food World
advertises that it has got the IR 8/20 rice at one of the lowest prices in the town,
the objective is to use the destination category of the retail grocery store to attract
greater store traffic. Promotions that increase footfalls and therefore improve
store traffic may result in a competing stores loyal customers to visit and even try
non-promoted merchandise. At the same time it would increase store inter-visit
time for the regular loyal store customers. Retail promotion objectives can be
store specific or product specific but the intended result is something that has to
be explicitly borne in mind while formulating a promotion plan. There is a need to
review the same after the promotion.
Shopper reaction
The consumer perspective of retail promotion is also crucial in formulating
promotions. Purchase event feedback is one of the crucial elements of the
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understanding of retail promotion. This concept means monitoring if the
promotion enhances or detracts consumers from future brand purchase
probabilities compared to non-promotion. In order to understand this concept, one
should look at a key theory in psychology as applied to consumer behavior, the
self-perception theory. Self-perception theory as attributed to the deal prone
consumer, results in questioning by the consumer - 'Did I buy the product
because of brand preference/ promotion?' The answer to this question by a
majority of the consumers of your store determines the nature of promotion to be
undertaken by the store.
If for example Shoppers Stop has through its customer relationship
management software a clear idea of the nature of customers especially
on deal prone-ness, it can decide what to emphasize in its promotion. The
decision to be taken is whether it is the store/brand or the promotion/deal
that would act as the primary reinforcement. The nature of promotion
needs to adapt according to the understanding of consumer behavior. In
this effort, we would also be able to clearly track brand loyal as well as
store loyal consumers behavioral effects of the consumer, when a
promotion is on are reflected in the nature of buying and therefore
implications for the retail outlet. Category purchase timing, brand choice,
and purchase quantity are the three major dimensions that one has to
track in order to see the effect of sales promotion. Category purchase
timing refers to the decision by the consumer to alter the regular purchase
cycle for the product. If Atta (wheat flour) is bought once in a fortnight,
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does she buy Atta earlier because of promotion? Brand choice refers to
the decision on being brand loyal inspite of a promotion on a comparable
competitive substitute brand. Would a consumer change from Captain
Cook to Tata salt because of promotion? Purchase quantity is a very
important variable to monitor as it is directly related to the nature of
consumption. This common effect of a promotion on a product or a brand
is reflected in stockpiling. For example, buying a five-litre edible oil jar
cheaper and storing the same for longer future use.
Lets take the example of a specialty coffee outlet selling different brands of
coffee. If we decompose the effect of sales promotion we may look, at lets
say, contribution of the three dimensions in the following manner - brand
switching (84 percent), purchase acceleration (14 percent), and stockpiling
(2 percent). This decomposition may be used to compare the effectiveness
of alternative promotional offerings and to determine the most suitable and
effective promotion. Putting together the facts that sales promotions
generate dramatic immediate sales increases and that brand switching
accounts for a large percentage of this increase, we can conclude that
sales promotions are strongly associated
with brand switching. If promotion increases a brand's sales by 100 units,
how many units come from other brands and how many units are due to
category expansion, i.e. shifts in the timing and/or amounts of purchase.
If three-fourths of the sales effect were due to other brands, retailers might
conclude that promotional activities provide little benefit. That is, unless
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promoted items provide higher margins, the vast majority of the effect
would simply be a reallocation of expenditures by households across items
within a category. Manufacturers/national brand marketers might conclude
that most of the effect increases competition between brands and would
not support promotions. Therefore, stockpiling and/or consumption
increases appear to be the dominant sources to look for sales effects due
to temporary price cuts. Cannibalization of future sales through stockpiling
is an important consideration in the assessment of the effectiveness of
sales promotions. In some product categories like beverages (Eg. soft
drinks) a substantial component of the primary demand increase may
represent enhanced consumption. One may drink more of Coke/Pepsi
because of a price cut. But in other categories (like house cleaning liquids),
households are unlikely to accelerate consumption. In these cases the
effect of sales promotion may just result in changed inventory
management by households.
Price/brand promotion
It has been proved by extensive research in the West that price promotions
are detrimental whereas non-price promotions are neutral/positive. Price
promotion of national brands erodes the loyalty of the national brands &
therefore helps the private labels/ store labels to gain market share. While
looking at it from store's viewpoint, the chain of causation could be - Price
promotion would lead to loss of national brand loyalty, which would trigger
greater trade allowances and therefore increase in store profit. However,
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the question of store image and loyalty are important. Discount stores like
Margin Free shop could afford to continuously involve in price promotion
whereas others cannot. Reaction from competitors is another aspect that
should be guarded against.
The conflict of promotion of store brands compared to the national brands
would become a matter of concern in the future in India. Many retailers see
the benefits of developing store loyalty as it can easily extend to store
brands. There are very few store brands in India competing with large
brands. However, for store brands, studies in the US have found that non-
price promotions have a more favorable long term effect on store profit
compared to price promotion.
IT IN Promotions
Several IT companies in the west have comprehensive solutions that
increase productivity and sales from promotions. They allow supply chain
participants to communicate more effectively throughout the various stages
in the design, implementation and evaluation of retail promotions. This has
been triggered by the significance of retail promotion. It is estimated that
60% of all retail activities are based around promotions and up to 40% of
these promotions fail to meet expectations. It is estimated that the industry
is losing Euro80 billion a year in retail promotions alone in Europe.
Inefficiencies in available management information, monitoring and
auditing of promotions result in:
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time losses i.e. communication delays between suppliers and retailers
communication errors in planning and execution among the various
departments
real costs at the end of the promotion i.e. the lack of clear cost
identification
lack of evaluation & management information
A 'live' access through an internet enabled retail promotion software and
communication between all those involved in the promotion cycle can
greatly enhance efficiency of the promotion while dealing with a large
number of formats & stores. In a large retail chain, a number of individuals
like the brand/category manager, promotions specialist and the individual
store manager are involved. A good understanding of the systems and an
efficient IT backbone would eliminate the inefficiencies involved in the
planning, implementation, and evaluation of promotions. It can reduce the
number of communications between the brand sponsor, retailer, and
supplier involved in any single promotion - traditionally by telephone, fax,
or e-mail - by 30 percent. In addition, it can dramatically reduce current
industry booking costs by as much as 60 percent through efficient
document generation and promotion auditing.
Thus, retail promotion in practice is akin to sales promotion by marketers.
However, by the very nature of business, retailers need to create
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excitement around outlets in order sustain. Therefore, retail promotion has
both short term as well as long term implications. A good mix of
promotions to serve both the objectives and a continuous effort to test
promotions through control stores & monitor store profitability will help in
sustaining any retail organization. Sales, traffic and profit need to be
compared as measures with base line sales/traffic in control stores in order
to study the effects on brand share, chain share, market share.
These would be measures that would provide the feedback on the right
promotions to continue with in the future. Cost effective non price
promotions, substantially unique promotion campaign that differentiates
and positions your outlet, coordination of the complex transactions using a
good information technology backbone corporate strategy oriented
objectives and a constant eye on consumer feedback are the ingredients
of a successful recipe called retail promotion.
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An Outlook Of Strategies Adopted : By European And
Indian RetailersTo Entice and Retain Customers
Retailers use promotions as a key strategy to entice and retain customers.
Effective promotions generate store brand equity, sales growth and
attracting repeat sales.
It is that time of the year when retailers woo customers by offering different
promotions and schemes, all designed to give the ultimate shopping
experience to the consumer and the required sales impetus to the retailer.
Shoppers' Stop has a 15-day 'India Shopping Festival' that offers prizes
ranging from diamonds to Scorpios. Another top retailer, Westside has a
Christmas magic promotion going on for 22 days with watches for gifts and
holidays to Singapore for the lucky shopper.
Some like Pantaloon are more into in-store promotions on certain
categories or merchandise. The company has been following this strategy
during the Diwali season too and this seems to be working well enough for
them. For example, Pantaloon is now running a promotion that offers
customers a shirt free on buying two trousers. Big Bazaar is tempting
women with discounts on several categories.
First, we take a look at a few few promotions by retailers
Shoppers' Stop has a 'India Shopping festival on that is on between
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December 13-Jan 27. Rs 1500 is what is needed to spend to be eligible for
the draws and there are gifts on offer on a daily, weekly basis and then the
bumper draws themselves. The total gifts on offer are 4000 diamonds, two
Scorpios and adventure holidays among others.
Globus is running a X-masti promo that has gifts on purchases above
certain amounts and holidays on offer.
Ebony is running a promotion 'Ebony Mega Sail' that has free cruises on
offer to about half a dozen exotic Asian locations. To participate in the
draw for these prizes, one has to shop for over Rs 1,500 at an Ebony
store.
At Westside, there is a shopping festival on from December 7-29 that has
events lined up and also watches as gifts on purchases in excess of Rs
2,500. If purchases exceed Rs 1,000, then one can participate in a draw
that has a trip for two to Singapore as the prize.
Akbarally's is offering attractive finance schemes for people who purchase
at their store, of course subject to their fulfilling certain criteria.
Promotions are a crucial tool in the retailers' arsenal to draw people into
their stores and considerable time, effort and money are invested for the
purpose. Says HS Kohli, director (operations), Ebony Retail Holdings,
"Promotions are a very important aspect of marketing. They help in
attracting the customer to the store. The more attractive the promotion, the
easier it is to bring the customer to the store. They love to feel involved
and be a part of the proceedings. It creates excitement and generates
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positive word of mouth publicity.'
Promotions can be of different types and each retailer has to decide the
promotional mix for their stores. This will in turn depend on the objective of
the promotion. Objectives can be of different types. One is to create brand
equity for the store in the minds of the customer. This will tell customers
how the store is differentiated from other stores and encourages tryouts
and doubters to come in to the shop and experience the offering. Says
Kohli, "Promotion is a central element of the Marketing mix. A promotional
activity is an effort made by a business to communicate with potential
customers. Promotional activities have two main purposes. These are to
inform customers about your store, its products, prices and services &
thereby increase footfalls. Once in the store to persuade customers to buy
the products you sell.
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Another is a short-term yet relevant objective of increasing sales during the
promotional period. Usually, the objectives are a mix of these two. Says Ajay
Kelkar, senior manager (marketing services), Shoppers' Stop, "Promotions are
seen from three perspectives. One is the brand promotion itself, like the Seven
Wonders shopping festival. The other is category/merchandise promotion. The
third is customer segment promotion where certain customers are targeted upon
for these promotions." The last mentioned segment is the customer loyalty
programmes that retailers use to encourage customers to shop more frequently at
the store and reap benefits as a result.
While promotions themselves cost money, publicising them itself involves
advertising in different media that in turn costs more money. Ultimately, the
objective of promotions should be defined, communicated and the results
of promotions should be measurable. This will not only enable evaluation
of promotions but also help fine-tune future events.
In budgeting for promotions, retailers commonly involve two categories.
One is the vendors themselves who have a significant stake in the store.
These vendors participate in the promotion with their merchandise as part
of the promotional mix, in turn getting publicity with the store as one of the
partners in the promotion. Another is non-competing partners who can
participate in the promotion and benefit from the huge crowd-pull of the
promotion. Says Kelkar, "There are a couple of partners like credit card
companies, telecom service providers who can participate in the
promotion, where we play the role of the aggregator." Thus, Shoppers' has
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the success or otherwise of the promotion.
In the final analysis, promotions are part of a retailer's life and setting
objectives is the most crucial activity, as every thing else will follow in
tandem. Evaluation a promotion is the other critical factor that will enhance
the feel-good factor created by a promotion with hard facts on its cost Vs
benefits. In a scenario where margins are anything but stratospheric, every
rupee spent on promotions must earn its worth as Kohli puts it, "each &
every promotion should be measurable to optimum ROI." And adds, "We
need to understand that promotions can do without retailing but retailing
cannot do without promotions." In sum, promotions if handled effectively
can do wonders for a company
"Building Trust" Is One Of The Important Key To Success In Retail
Sector
The ever-increasing focus on the customer will encourage all retailers to
investigate the best way to foster and retain customer loyalty. We take a
look at trends in retailing in Europe.
Tougher competition, breaking down of traditional barriers between
products and services and increasingly discerning customers necessitate
retailers to access an increasing range and depth of expertise to sustain
competitive advantage. With a shift in focus from loyalty to customer
relationship management, there has been an increase in the importance of
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loyalty cards within retailing.
Retailers are redefining customer relationships by developing tailored
loyalty card schemes and by extracting customer knowledge with the aid of
sophisticated data-mining and analytical tools. Over the past few years,
developments in the introduction and structure of loyalty card schemes
with varying degrees of claimed success highlighted the need for a
strategic model to help retailers decide on the most effective loyalty card
strategy.
This article is based on a survey report - the result of an in-depth research
undertaken by KPMG in partnership with Oxford Institute of Retail
Management (OXIRM). It provides valuable insights into developing trends
and impact on customer loyalty on retailing, and helps develop a
framework and analytical model. This model can be used to help clients
evaluate and select the right loyalty card strategy to meet their business
goals.
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The report helps retailers answer three key questions like the need for
loyalty card schemes, measurement methods for success of such scheme
and how to rework a failing scheme. This helps them evaluate the success
and future development of their loyalty card strategy.
Purchaser-Purveyor Loyalty Model
The Purchaser-Purveyor Loyalty Card Model shows five major loyalty card
strategies available to a retailer: Pure, Push, Pull, Purchase and Purge
(see diagram 'Picking the Perfect P').
Pure - involves spending and accruing benefits only with the card-issuing
retailer. An example would be purchasing groceries from a specific retailer
to gain a discount on future grocery purchases from the same retailer.
Push - involves spending at several retailers and accruing benefits with the
card-issuing retailer. An example would be a card-issuing retailer linking
with a bank to gain access to many retailers through the use of a common
payment scheme (e.g. Visa or MasterCard).
Pull - involves spending at the card-issuing retailer and accruing benefits
outside the retailer's everyday range. An example would be purchasing
petrol from the card issuer in order to claim gifts from a catalogue provided
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by a third party (for instance, Shell's SMART Card.)
Purchase - involves spending and accruing benefits across many retailers.
An example would be the use of general credit cards in order to claim gifts
from a catalogue.
Purge - involves no loyalty card. An example would be grocery shopping at
Asda supermarkets.
A retailer can embrace a range of loyalty card strategies in a single card.
However, the customers ultimately determine the most successful strategy.
To validate the general use of the Purchaser-Purveyor Model, a survey of
51 loyalty schemes across 10 European countries and 10 retail sectors
was carried out (see diagram 'Selecting a Strategy'). It revealed that 33 per
cent were Pure, 14 per cent were Push, 31 per cent were Pull and 22 per
cent were Purchase card schemes. The analysis also revealed an
apparent relationship between loyalty card strategy and retail sector.
Grocery retailers tend to operate Pure, mixed retailers Pure or pull,
financial services retailers purchase and petrol retailers Pull loyalty c
strategies.
Measures of Success
It is clear that loyalty card strategies need to be regularly evaluated and
evolved. Every loyalty card strategy must have clear performance targets.
This research suggests retailers should consider three critical success
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Cost of Loyalty Card Schemes
The cost of these schemes comprises charges (for the privilege of having
a loyalty card), administration (heavy initial investment followed by
significant running costs) and incentives. This research indicates that
efficient loyalty card schemes breakeven on an ongoing basis at around 3-
4 per cent increase in overall turnover. The speed with which the
breakeven point is reached, depends on the set-up costs, the take-up of
the card and the overall turnover and profitability of the retailer (see
diagram 'Price of Privilege'). The diagram compares four different schemes
- frequent use, non-payment card, frequent use, payment card, infrequent
use, magnetic strip-based card and infrequent use, smart (microchip-
based) card. Each scheme has its own advantages and disadvantages.
Furthermore, different tactics and operations can radically alter the cost
structure of such schemes.
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Deciding the Right Strategy
The Purchaser-Purveyor Loyalty Card Model offers a range of strategies
available to the retailer. It helps consider potentially successful scenarios
for the loyalty card strategy, key measures to monitor its success, key
tactics and operations for its success and strategic moves when the
retailer wishes to develop its loyalty card strategy as circumstances
change. Selecting the best strategy is dependent upon finding alignment
with overall strategic objectives.
Pure schemes are used primarily for retaining existing customers and are
often developed by the leading company in a retail market. Since a Pure
strategy is focused on the existing relationship between a customer and
the retailer, the key measures must be aimed at increasing the expenditure
and profitability of individual cardholding customers. A pure loyalty card
strategy primarily affects current customers. Therefore if successful, new
primary customers would then need to be attracted via a Push loyalty
strategy.
A Push Strategy is primarily aimed at pushing new primary customers
towards the retailer - is most appropriate when a retailer wishes to expand
its customer base and financial services base. Key measures must be
aimed at increasing the number of cardholding primary customers. To
increase the number of new primary customers, successful Push loyalty
card strategies tend to rely on external market research information. They
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tend to act as reward cards and payment cards simultaneously.
A Pull Strategy is aimed at attracting new primary customers or retaining
current customers - is best suited when a retailer's offer is not sufficient in
itself to attract new primary customers or retaining the existing ones. It is
focused on both attracting new primary customers as well as maintaining
the relationship between an existing customer and the retailer. Therefore
the key measures must be aimed at a combination of increasing the
number of cardholding primary customers and increasing the expenditure
and