Contents

Introduction Meaning of Retail Meaning of Fashion Retail

Evolution of Retail Global Retail Evolution India’s Retail Story

Theories of Retail Environmental Theory Cyclical Theories Conflict Theories

o Wheel of Retailingo Retail Accordion Theory

Conflict Theories

Retail Today Global Retail Scenario Indian Retail Scenario Formats of Organized Retail Key trends in Indian Retail Key Challenges in Indian Retail Factors propelling the growth of the organized retailing

Bibliography

Introduction

RetailRetail is the sale of goods to end users, not for resale, but for use and consumption by the purchaser. The retail transaction is at the end of the supply chain. Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers. “Retailing is an ancient art that has been practiced from the early years of mankind in the form of barter to the very technologically sophisticated e-tailing that is done in the 21st century. In any format, retailing involves the sale of goods and services to the final consumer.” (Bennett, 1995). The forms of retailing are bricks-and-mortar stores, non-store bases (i.e., direct retailing), or a combination of a store and a non-store base. […]”

Manufacturer Distributor Wholesaler Retailer End customer

Scope of Retail ManagementIndia's retail sector is wearing new clothes and with a three-year compounded annual growth rate of 46.64 per cent, retail is the fastest growing sector in the Indian economy. Traditional markets are making way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western-style malls have begun appearing in metros and second-rung cities alike, introducing the Indian consumer to an unparalleled shopping experience.

Evolution of Retail

Economic Retail Evolution CycleThe study of the history of retailing business throws up the fact that in most economies organised retailing passes through four distinct phases in its evolution cycle.

1. In the first phase, new entrants create awareness of modern formats and raise consumer expectations. 2. During the second phase, consumers demand modern formats as the market develops, leading to strong growth. 3. As the market matures, intense competition forces retailers to invest in back-end operating efficiency. 4. In the final phase, retailers explore new markets as well as inorganic opportunities as growth tapers off.

India’s Retail Story

Yesterday• Socialist policies – minimal private sector role• Bureaucratic• Protected market• Small consumer markets• Underdeveloped infrastructure

Today• One of the fastest growing economies ; 9%+ growth rate for 5 years prior to current crisis • Resilient Economy – 5-6% growth at the peak of the global crisis• Opening up sectors for investment• Promising consumer markets• Significant investment in infrastructure development

Tomorrow• Largest democracy; Stable government.• Dominant private sector; Increasing withdrawal of government from business• Robust banking sector; Capital markets• World class IT & telecom infrastructure• A ‘connected economy’; Economic efficiency & quality of governance

Theories of Retail

Three theories are commonly recognized as the primary retail evolution theories: (a) Environmental theory, (b) Cyclical theory, and (c) Conflict theory. The basic premise of these theories is that a force (e.g., environment, conflict) causes a retail institution type to change and evolve into a new institution type or a new institution type will emerge as a result of need, conflict or other forces.

Environmental TheoriesThe common concept […] is that the retail environment is the key influence to retail changes, and to survive change and competition, retail institutions need to evolve by adapting or adjusting to the environmental changes (Blizzard, 1976; Brown, 1987; Gist, 1968; Oren, 1989).

This theory proposes that only a retail institution, which is most effectively adapted to environmental changes could survive. Variables such as consumers, economy, technology, and competitors and social, cultural, and legal conditions exist in every environment and a retailer must be able to adapt to the dynamic changes occurring within the environment. Across countries, environment variables affect retailers at various levels and thus have significant bearing on retail change and evolution.

Criticisms1. Environmental changes are not synonymous with required retail evolution. Retail institutions are not

legally required to be evolved, even when their environments change.2. Researchers could not confirm that all retail evolutions followed the pattern that the Environmental

theory proposed. Some environmental influences, which significantly influenced on some retail evolutions, could be a non-significant influence to other retail evolutions.

Cyclical TheoriesThe common concept of all Cyclical theories is that retail institutions evolve in a rhythmical pattern or cycle by adjusting their retail attributes, such as price or assortment. Two of the most well-known Cyclical theories are the Wheel of Retailing theory and the Retail Accordion theory.

Wheel of Retailing TheoryThe Wheel of Retailing theory is an example of retail evolution determined through the price aspect. It is a marketing process whereby original low-price discounters upgrade their services and gradually increase prices. As they evolve into full-line department stores, a competitive opportunity develops for new low-price discounters to develop, and the process continues with the next generation.

Wal-Mart is a classic example of this theory. K-Mart deserves credit for having created the category that has challenged traditional department stores. Wal-Mart took it to new heights. […] It is clear that Wal-Mart is even now setting itself up for the entrance of an entirely new form of retailing: an innovative, more cost-effective, new entrant.

Criticisms1.Not all retail institutions start with low margins and low prices. (Eg: boutiques)2.Lack of universality of the theory. (Eg: In Turkey, supermarkets were imported and positioned as a

retailer providing high price and high margin products at the entry phase)3.The consecutive cycles support evolution of retail formats in a particular order.

Retail Accordion TheoryThis is a theory of retail institutional change that suggests that retail institutions go from outlets with wide assortments to specialized narrow line store merchants and then back again to the more general wide assortment institution. It is an example of retail institutions’ evolution in terms of product assortment.

Criticisms1. Small specialty retail institutions tend to resist expansion of their merchandise lines2. Only retailers who can withstand competition and have the financial resources to respond and react,

evolve through this theory.3. When a retailer has business partners and is bound to them with contracts and regulations, retail

evolution is limited.4. The theory focuses on merchandise assortment, which is only one aspect of retail evolution.5. Lack of experimental or causal research to support the theory.

Conflict Theory

Dialectic TheoryGist (1968) replaced the “situation” from Karl Marxs’ Theory of Evolution with a “retail institution” in the Dialectic theory. He proposed that an existing retail institution is challenged by its competitor because it has competitive advantages over the existing retail institution. As time passes, the first retail institution imitates the characteristics of competitor to upgrade its existing characteristics and creates a new retail institution. According to him, the discount store is a synthesis of department stores and wholesale stores. Discount stores offer a variety of products in one place by dividing the store into many departments and selling directly to the final consumer (i.e., characteristics of department stores). At the same time, discount stores have reduced prices and limited services (i.e., characteristics of wholesalers). According to the theory, when introduced into retailing in the 1950s, discount stores were considered a new institution type created by blending these two retail institution types.

Criticisms1. Original retail institution types may not change.2. What retail operations and how these operations interact between two retail institutions and how a

new operation is finally created are difficult to explain in a discrete step-by-step process.

Retail Today

Global Retail Scenario

Retail, with total sales of $ 6.6 trillion, is the world’s largest private industry ahead of financial industries $ 5.1 trillion. It is also home to a number of the world’s largest enterprises. Over 50 of the Fortune 500 companies, and around 25 of the Asian top 500 companies, are retailers. The industry accounts for over 8 percent of the GDP in western economies.Globally, Retail is a very fast changing field and the customer not only has to keep up with ever changing expectations and demand of the consumers but also has to keep a track on the competition and changes in technology.

The US retail Industry is the world largest retail industry and its still growing. In USA most part of retailing is accounted by organized sectors. The organized retailing has gained a great deal of momentum in China in the past few years. The developing countries are also making an effort in the industry. Retail is the significant contributor to the overalleconomic activity around the world. The employment opportunities offered by the retail industry is huge. Globally, retailing is customer centric with an emphasis on innovation in product, process and services.

Deloitte, Global Powers of RetailingRank 2008 2010

1 Wal-Mart Wal-Mart2 Carrefour Carrefour3 The Home Depot, Inc. Metro4 Tesco Tesco5 Metro Schwarz Unternehmens Treuhand KG

6 The Kroger Co. The Kroger Co.7 Target Corp The Home Depot, Inc.8 Costco Wholesale Corporation Costco Wholesale Corporation9 Sears Holdings Corp Aldi GmbH & Co.

10 Schwarz Group Target Corp

Trends

Countries like South Africa, UAE, Singapore, India, Russia and Brazil are looked at as emerging fashion markets today. The key growth drivers in these countries are Government Support, Recognition of Local Designers, Support from Corporations and Associations, Awareness of International Fashion Brands and Demand for Fashion Apparel. Major fashion houses are expanding their presence in the emerging markets of Asia, the Middle East, and Latin America.

Source: World Retail Data and Statistics: 2008-2009

Organized Retail as a % of Total Retail Sales - 2008

Source: ICRIER Retail Report 2008

Indian Retail Scenario

Most of the retailing in India is unorganized. Only 5% of total retail sector is organized in the country. Organized retailing has just started recently, and has been concentrated mainly in the metro cities. The two main factors which drives organized retailing in India are low prices and the benefits that are offered by them. Over the past few years. International companies like Marks & spencer, Mc Donald’s, Dominos etc have entered the Indian markets. Large Indian companies like Reliance group, Future group, Essar telecom Retail, Shopper stop are investing huge amount of money in this sector.

Penetration of Organized Retail in Indian Industries

(Source: IBEC)

Impact of Recession

Interestingly, despite the global crisis when other sectors were struggling to survive, the retail sector had not been impacted in a big way as revealed by the ETIG analysis conducted by the Economic Times. According to the second-quarter results of leading 70 consumer-related firms there was a rise in their aggregate revenues by 8.5 per cent during the September 2008 quarter over the same period in 2007. Even though this was lower than the 9 per cent growth posted during the first quarter of 2008-09, it was a lot higher than the 7 per cent registered during the previous three quarters for these firms.

Formats of Organized RetailVarious classification methods are used to classify retailing institutions by a variety of operational, organizational, or locational criteria. For example, institution types are characterized by store organization such as the single unit store versus the chain store and store format such as the bricks-and-mortar store versus non-store.Formats in Indian Organized Retail Sector and its subsequent successful operation is credited to India Economic System reform earnest in July 1991. Indian Organized Retail Sector is at its nascent stage.

Hypermarkets Hypermarkets are huge department stores. Their average retail space is between 50,000 sqft and 100,000 sqft. They offer a large basket of products ranging from grocery, fresh and processed food, beauty and household products, clothing and appliances, etc. Some hypermarkets in India are Big Bazaar, Star Bazaar and Spencers’.

Cash & CarryCash and Carry stores have around 75,000 sq ft of retail area. They usually offer several thousand stock-keeping units (SKUs) and generally have bulk buying requirements. Examples of cash and carry stores in India are Metro, Bharti-Wal-Mart etc.

Department StoresDepartment stores offer a large layout with a wide merchandise mix, usually in cohesive categories including fashion accessories, gifts and products for the home. Their average size varies between 10,000 sq ft and 60,000 sq ft. Shoppers Stop, Lifestyle etc are department stores.

SupermarketsSupermarkets are generally large in size. Besides offering household items, they deal in food and perishable products as well. Some well-known supermarkets are Food Bazaar, Nilgiris etc.

Shop-In-Shop (SIS)Shops that are located within the premises of large shopping malls or large department stores are called SISs. Infinity (Magma Group) is a good example.

SpecialtyStores dealing in a single category of product line and that focus on individuals and group clusters of the same class, with high product loyalty are classified as Specialty stores. Brand Factory and Food Bazaar fall under this category.

Category KillersLarge specialty retailers focussing on a particular segment, who are able to provide a wide range of choice to consumers, usually at affordable prices, and less than MRP due to the scale they achieve, are category killers. Viveks, Ratna Stores, Central etc are examples.

Discount StoresDiscount stores have an average size of 1,000 sq ft. These stores offer wide range of products, mostly branded, at discounted prices. Subhiksha, Levi’s factory outlet are discount stores.

Convenience StoresConvenience Stores have a retail space of 800 sq feet. They are relatively small retail stores located near residential areas. Examples are In & Out and Safal.

FranchisingThe franchisee model has adapted well to Indian market conditions, providing opportunities for a large number of entrepreneurs to work with the support of big brands. Global players such as Tommy Hilfiger, SPAR International, Costa Coffee, Hertz, Radisson, Kentucky Fried Chicken (KFC), Domino’s Pizza, T.G.I.Friday’s, Ruby Tuesday, Subway, Mother care and McDonald’s have become forerunners in India through the franchisee route. There are more than 600 franchisors and 40,000 franchisees in India. The franchising segment alone employees about 3 lac people.

Key trends witnessed in Indian retail sector

Emergence of multiple franchisee models This model is largely adopted by companies offering products in value and semi-premium branded segments to enable greater scale, limit dependence on a few players and leverage local hands-on knowledge of the market. Jumbo King, the Mumbai-based snack major, and PepsiCo India are following this model.

Rural retailing As the pace of growth in rural India slowly outpacing urban growth rates, most of the conglomerates and retail companies have realized the simmering potential of rural consumer base. For e.g.: DCM Shriram's and ITC’s Chaupal Sagar

Collaborative model for international productsIn a key market like India, issues like quality, pricing, brand management and promotions play a key role in the success of a product. As a result Joint ventures (JV) are emerging as the preferred model for new entrants, so that they can leverage the knowledge of the local players for addressing these key issues.

Vertical integration To explore additional sources of revenues, Retail companies are looking at integrating their business models vertically. For example, Dabur India Ltd’s retail foray into health and beauty retail business through a retail chain known as ‘NewU’, and Nokia opening its concept stores

Collaboration in back-end resource sharing Another emerging trend in the Indian retail market is the collaboration of back-end resources by aligning their sourcing operations and sharing private labels, logistics, warehouses and hiring details on a transactional payment basis. For example, the Future Group, the AdityaBirla Group, the RPG Group and the Reliance Group have come together to reduce their operational costs and improve margins

Increasing market reachAs the growth in Tier I cities are approaching saturation limits, Retail companies now seek to increase their footprint in Tier II, III, IV cities and towns to capture the domestic demand. For example, the Raymond Group has plans to open more than 200 stores across the country by mid-2011 and the Tata Group's retail venture, Westside, is planning to expand its franchisee base in Tier II and Tier III cities.

Innovation in new retail formats Not only are the retailers investing in their operations, but are also exploring the possibility of adopting new business models or formats. For example, Reliance Retail has devised a new business model under which it will open small employee-friendly retail outlets at the premises of large corporate organizations. The Network18 group has ventured into online and on-air retail marketing and distribution through HomeShop18.

FDI in Indian Retail

In India , FDI in Retail, is restricted. 51 % of FDI is allowed in Single brand retailing and 100 % in cash and carry format.

An international retailer can enter the Indian Retail market in any of the following- 1. High tech items/items that require specialized after sales service. 2. Social sector items. 3. Medical and diagnostic items.

Foreign investors can enter India through one or more of the following methods:1. Franchising (Eg: Nike, M&S)2. Joint Ventures (Eg: Reebok)3. Setting up distribution offices (Eg: Hugo Boss)

India’s Retail Sector Growth (Source: India Shopping Trends, 2008 – Technopak)

IT Innovations in Indian Retail

“IT plays a crucial role in the retail industry. Retail is amongst the fastest growing sectors in the country and India ranks first, ahead of Russia, in terms of emerging markets potential in retail,” says Lokvir, CEO, PineLabs.

The IT innovation revolution in retail is steadily taking shape in India. The process is such that it has the potential to change the way in which we purchase even the basic necessities such as groceries and vegetables. Innovation is happening not just at the backend, but also at the customer facing end. It’s taking place all over, right from where the customer enters a store to the point where he leaves. This essentially covers the whole process of buying of products, right from selecting to decision making and paying at the checkout counter.

Some of the key innovations include:

Customer identification using RFID: This involves identifying customers by issuing them smart cards embedded with smart chips. These cards would be RFID enabled and would give information regarding the customer like his preferences, shopping behavior etc.

E-Catalog based selling: Here a limited range of merchandise is available in-store, while the range of a hyper format is made available through self browse kiosks.

Mobile Point of Sale (POS): This would enable the purchase of goods while putting them in a shopping cart. The customer would be spared the hassle of standing in long queues.

Digital Signage: Static signboards have not proved beneficial in terms of helping a customer track a product. Digital signboards integrated with an automated tracking system can make this easier.

Intelligent database: A detailed database of the customer is made available online and helps the retailer understand a particular customer’s buying characteristics.

Key Challenges in Indian Retail

Immense ethnic diversity Absence of Infrastructure and good retail space Workforce Management (talent crunch) IT Infrastructure Supply Chain Legal

Factors estimated to propel the growth of the organized retailing

Increased Purchasing Power Changing Consumption Patterns Young Indian Consumers More Available Retail Space Easier Financing Improved Logistics and Better Infrastructure

Conclusion

Comprising of organized and unorganized sectors, the Indian retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. The retail industry in India is currently growing at a great pace and is expected to go up to US$ 833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at a CAGR of 10%. As the country has got a high growth rates, the consumer spending has also gone up and is also expected to go up further in the future. In the last four year, the consumer spending in India climbed up to 75%. As a result, the India retail industry is expected to grow further in the future days. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.

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