ECONOMICS PROJECT

“RETAILING”

Rushabh Shah
MBA (I.B)
Introduction to Retailing
“Retailing consists of those business activities, which are involved, in the
sale of goods or services to consumers for their personal, family or
household use.” It is the final stage in the distribution process for goods and
services from manufacturers to final consumers.

Final
Manufacturer Wholesaler Consumer
Retailer

Retailing involves
- Interpreting needs of the consumers
- Developing good assortments of merchandise
- Presenting them in an effective manner so that consumers find it easy and
attractive to buy.

Retailing differs from marketing in the sense that it refers to only those
activities, which are related to marketing goods and/or services to final
consumers for personal, family or household use. Whereas marketing,
according to American Marketing Association, refers to "the process of
planning and executing the conception, pricing, promotion and distribution
of ideas, goods and services to create exchanges that satisfy individual and
Organizational objectives."

Organizational buyers purchase in order to perform a task or sell a product

effectively, efficiently and at a profit. They could be industrial buyers or

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intermediary buyers. Industrial buyers are those who purchase goods and
services to be used in or to aid manufacturing process. Intermediary buyers
are those (i.e. wholesalers and retailers) who buy merchandise for resale.
Retailers include street vendors, local supermarkets, department stores,
restaurants, hotels, barbershops, airlines and even bike and car showrooms.
Still retailing may or may not involve the use of a physical location. Mail
and telephone orders, direct selling to consumers in their homes and offices
and vending machines - all fall within the purview of retailing. In addition to
it, retailing may or may not involve a "retailer." Manufacturers, importers,
non-profit firms and wholesalers are acting as retailers when they sell goods
and/or services to final consumers.
Whatever the form of retailing, a retail marketing strategy defines the
execution of the marketing process and facilitation of customer satisfaction.
This retail marketing strategy involves selecting a retail target market (i.e.
the carefully/exactly identified group of final consumers that a retailer seeks
to satisfy) and then implementing the corresponding retail marketing mix
(i.e. a combination of product, price, promotion and distribution strategies
that will satisfy the retail target market). The elements of the marketing mix
encompass the facets shown in the table below.

Retail Marketing Mix

Product Branding Price

Packaging Cost of goods
Product Design Business Expenses
Assortment Gross Margin
Services Profit

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 Promotion Distribution
Advertising Logistics
Personal Selling Store Location
Sales Promotion Site Evaluation
Public Relations Transportation
Visual Merchandising Storage of goods

The implementation of such a retail strategy mix benefits consumers and

producers and yields economic utility.

Source: -Ron Hasty, James Reardon - Retail Management

The first point under retailing benefits for customers, bulk breaking refers to
the act of retailers of buying goods in large quantities and then breaking
them into smaller sizes for their individual customers. As a result purchases

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become convenient for customers - in terms of quantity bought as well as
expenditures made.

The assorting function is nothing but evaluating all the different products
available and offering to the target the optimum array of products from
which to choose.
The storing function performed by the retailers relieves customers of the task
of anticipating their desires too far in advance of their needs as the retailers
keep goods in inventory until customers are willing to buy and use them.

Retailers help manufacturers smoothen the production cycle by placing

orders for peak demands well in advance and by managing inventory even
on behalf of the manufacturer and create economic utility for consumers by
providing products in the form and at the place and time desired by the
consumer.

Why Study Retailing?

So far, it has been seen that retailing is a vital and involuntary action
performed by the living structure of the market economy (as opposed to the
case in a barter economy). In a barter economy, barter transactions take
place between consumers themselves. Consumers interact directly whereas
in a centralized market economy, transactions taking place at a larger scale
(both in terms of volume and variety) necessitate an interface between the
manufacturers and final consumers. Hence we reinforce the fact that
retailing is not a new deal.

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Our study concentrates on organized retailing, which consists of shopping
malls, super markets, chain stores, and like. In the last few years a shift has
occurred in India from individual retail outlets owned separately and
managed distinctively to professionally managed retailing. This is an
industry, which has now started attracting better investments and talent.
Things changed primarily because of the rising expectations of Indian
consumers and the corporates responding quickly.
Today, the industry (in India) seems to be functioning somewhere between
the accelerated development and maturity stages, with high growth rates,
intense competition and moderate profitability.

In order to get an idea of the magnitude of the issue we are dealing with, we
look at the international scenario. During 1992, the largest 100 retailers in
the world generated over $1.1 trillion in revenues.

Retailing is the second largest industry in the world, one of the largest
employers of the world and an index of economic growth. In India there are
about 5 million retail outlets varying in sizes and nomenclatures. India has
the highest number of retail outlets per capita in the world but has the lowest
retail space per capita in the world (2 ft / person). Out of these 5 million
outlets 96% are smaller than 500 sq. ft. in area 3. There are about 3 million
outlets in India's 3700 designated towns and more than 6,00,000 villages.
About 350 million people live, within one-minute walk of these retail shops.
According to retail census conducted by market researcher ORG-MARK,
Rs.4,79,568 crore worth of products were sold through these 5 million retail
outlets.

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Manufacturers owned and retail chain store are springing up in urban areas
to market consumer goods to the middle class in a much similar style as
malls around the globe. At present about 8% of the Indian population is
employed in the retailing industry as against 20% in USA. As India moves
towards the service oriented economy, a rise in this percentage is expected.
The number of the retail outlets is growing at about 8.5% annually in the
urban areas and in towns with population between 1,00,000 to 1 million; the
growth rate is about 4.5%.

According to Kurt Salmon Association, a global management consulting

firm, organized retailing seems all set to power ahead from Rs. 5000 crore
currently to about Rs.30,000 crore in next five years. A.T.Kearney reports
that organized retailing will account for about 20% of the total $8 trillion
retail market in India in the next 5-7 years as against 1-2% today.

Consumer Spend by 2005 (in Rs. crore)

Unorganised Retailing 7,08,836

Organised Retailing
Food and grocery 5,956
Non food 23,886

In India, organized retailing is catching up fast. Yet retailing is to be

recognized as full-fledged industry in the India. Organized retailing is bound
to grow tremendously provided the right marketing strategies are adopted.

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Even though the big retail chains are concentrating on the upper segment
and selling products at higher prices like Crossroads, Akbarally's and
Shopper's Stop, retail stores are sprouting that cater to the needs of the
middle class. With a huge middle class population, the retailers like RPG's
Food World are tapping this market. The market is flooded with products -
branded and unbranded. The customers are in a dilemma as to pick which
one! The organized retail chains, display all the products and the most
attractive product catches the customer attention. Gone are the days of
customer loyalty with increasing number of products of similar quality
hitting the market. Differentiation plays the lead role. According to Mr.
Simon Bell of A.T.Kearney, there is a close relation between the growth of
brands and the growth of the organized retailing. "Companies selling
branded products prefer to have big and organized retail outlets such as
supermarkets where there can be differentiated from unbranded products" he
opines. India is going through that phase in retailing, which the US
experienced in 80s and early 90s. From product based shopping, the
importance has shifted to experience based shopping.

The customers of the 21st century would expect to pick his/her own products
from an array of choices rather than asking the local kirana wallas to deliver
a list of monthly groceries. Thus the way of distribution of products has
gained importance in the past decade.

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The Industry Structure

Hence, commencing the study of retailing industry, we must first look at its
structure - what the retailing industry is made up of, what it looks like. The
structure of the retailing industry can be studied from two perspectives -
according to the form of ownership of various retail units or according to the
strategy mix that various retailers adopt.

Based on the form of ownership, various types of retailers comprising

the retailing industry are described below:

A. An unaffiliated or independent retailer is one who owns and operates

only one retail outlet. A family mostly owns it with high dependence on the
owner, thus affecting long run success and employee morale. He is supposed
to have a friendly personalized image and his offering reflects the tastes and
preferences of its owners and customers. Kirana shops are very good
examples of such retailers.

B. A chain retailer or corporate retail chain owns and operates multiple

retail outlets (store units) under common ownership. Most chains have well

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defined management philosophies, which tend to be solid overall strategies.
These contribute towards limiting the independence of the local owners of
the individual units who, in addition, lack commitment also.
Consistent strategies with reference to store hours, product assortment,
prices, sales personnel, promotion and other policies must be maintained
throughout all branches in order to project a particular image of the chain.
This calls for centralized decision making which in turn result in difficulties
for individual units in adapting to local needs of the target markets.
There also exist associations of independent retailers, which are formed in
order to compete more effectively with corporate chain stores. They enjoy
benefits of a corporate chain while still maintaining status of individual
owners. These associations could be formed with other retailers (known as
co-operative chains), with sponsorship by a wholesaler (known as voluntary
chains) rather than by the retailers themselves or by franchise agreements
sponsored by manufacturers or distributors (known as dealers) or by service
firms (known as franchisees).

C. A franchise system results from a contractual agreement between a

franchiser and a retail franchisee, thus allowing the franchisee to conduct a
given form of business under an established name as per a particular
business format in return for an initial fee and a percentage of monthly gross
sales as royalty. It helps franchise to create national or international presence
quickly and with similar investments (than required by the franchise alone
for creating such a presence independently).
On the flip side, franchisees, that are owners and not employees, have a
greater incentive to work hard than the owners (or caretakers) of retail units

10
in other forms of retail chains. Also to their advantage, they obtain SOPs and
management skills from the franchise.
Further, they have support from co-representative to spot and solve
problems. To effect customer loyalty, uniformity has to be maintained
throughout the franchisee network. So in order to maintain the established
image of the franchise, franchisees have to meet some specified provisions
of franchise agreements. These, if not met, give the right to the franchise to
avoid the individual franchisee. It is for this reason that franchisees are
seeking more and more independence from franchise rules and regulations.

There are some key questions that a franchisee must answer while evaluating
franchisee opportunity:
· Does the franchise have a strong chance of competing in his community?
· Does the franchise have potential for further growth or does
its success depend on a fad?
· Will franchise ownership be an advantage in the business he is considering
or could he do as well on his own.
·What is the company's attitude towards-
Development of new products, franchisee termination and renewal, and
territorial protection for existing franchisees?

D. A Leased Department (LD) is a department in a retail store that is

rented to an outside party. If the existing store is well known, with a large
number of steady customers, it becomes easier for the LD to generate
immediate sales. It operates in categories on the fringe of the store's major
product lines and it must be taken care that it is not a parasite and does not
live off the traffic generated by other parts of the store. Thus goods or

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services lines that it can offer may be restricted. Apart from this, various
requirements are imposed to ensure overall consistency and co-ordination.

E. Vertical Marketing System (VMS) is comprised of all the levels of

business along a channel of distribution (Refer to Fig.1). In an independent
VMS, there are three levels of independently owned businesses -
manufacturers, wholesalers and retailers. Such a system is most beneficial if
manufacturers and/or retailers are small, intensive distribution is sought and
customers are widely distributed.
In a partially integrated VMS, two independently owned businesses (most
likely a manufacturer and retailer) along a channel perform all production
and distribution functions without the aid of the third i.e. wholesaler. This
type of system is most appropriate if manufacturers and/or retailers are large,
selective or exclusive distribution is sought and existing wholesalers are too
expensive or unavailable.
Through a fully integrated VMS, a single firm performs all production and
distribution functions without the aid of any other firms. A fully integrated
VMS enables a firm to have total control over its strategy, to have direct
contact with final consumers, to have higher retail markups without raising
prices (by eliminating channel members), to be self sufficient and not rely on
others and to have exclusivity over the goods and services offered.

F. Consumer Co-operatives are retail firms owned by their respective

customer members. In such co-operative arrangements, groups of consumers
invest in the co-operative, receive stock certificates, elect officers, manage
operations and share the profits or savings that accrue.

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Consumer Co-operatives come into existence with the purpose (of some
consumers) of operating stores as well or better than traditional retailers, of
getting control over prices, of saving money by substituting their own labour
or of getting access to healthful, environmentally safe plots, not available
from traditional stores.
Now, the first four categories are compared in Annexure 4 on six
parameters.
Based on the strategy mix that various retailers adopt, the industry will
comprise of fifteen types of retailers.

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RETAIL INDUSTRY IN INDIA
• Even though India has well over 5 million retail outlets of all sizes
and styles (or non-styles), the country sorely lacks anything that can
resemble a retailing industry in the modern sense of the term. This
presents international retailing specialists with a great opportunity.

• It was only in the year 2000 that the global management consultancy
AT Kearney put a figure to it: Rs. 400,000 crore (1 crore = 10
million) which will increase to Rs. 800,000 crore by the year 2005 –
an annual increase of 20 per cent.

• Retailing in India is thoroughly unorganised. There is no supply chain

management perspective. According to a survey b y AT Kearney, an
overwhelming proportion of the Rs. 400,000 crore retail market is
UNORGANISED. In fact, only a Rs. 20,000 crore segment of the
market is organised.

• As much as 96 per cent of the 5 million-plus outlets are smaller than

500 square feet in area. This means that India per capita retailing
space is about 2 square feet (compared to 16 square feet in the United
States). India's per capita retailing space is thus the lowest in the
world (Source: KSA Technopak (I) Pvt Ltd, the India operation of the
US-based Kurt Salmon Associates).

• Just over 8 per cent of India's population is engaged in retailing

(compared to 20 per cent in the United States). There is no data on
this sector's contribution to the GDP.

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• From a size of only Rs.20,000 crore, the ORGANISED retail industry
will grow to Rs. 160,000 crore by 2005. The TOTAL retail market,
however, as indicated above will grow 20 per cent annually from Rs.
400,000 crore in 2000 to Rs. 800,000 crore by 2005 (source: survey
by AT Kearney)

• Given the size, and the geographical, cultural and socio-economic

diversity of India, there is no role model for Indian suppliers and
retailers to adapt or expand in the Indian context.

• The first challenge facing the organised retail industry in India is:
competition from the unorganised sector. Traditional retailing has
established in India for some centuries. It is a low cost structure,
mostly owner-operated, has negligible real estate and labour costs and
little or no taxes to pay. Consumer familiarity that runs from
generation to generation is one big advantage for the traditional
retailing sector.

• In contrast, players in the organised sector have big expenses to meet,

and yet have to keep prices low enough to be able to compete with the
traditional sector. High costs for the organised sector arises from:
higher labour costs, social security to employees, high quality real
estate, much bigger premises, comfort facilities such as air-
conditioning, back-up power supply, taxes etc. Organised retailing
also has to cope with the middle class psychology that the bigger and
brighter a sales outlet is, the more expensive it will be.

• The above should not be seen as a gloomy foreboding from global

retail operators. International retail majors such as Benetton, Dairy

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 Farm and Levis have already entered the market. Lifestyles in India
are changing and the concept of "value for money" is picking up.

• India's first true shopping mall – complete with food courts, recreation
facilities and large car parking space – was inaugurated as lately as in
1999 in Mumbai. (this mall is called "Crossroads").

• Local companies and local-foreign joint ventures are expected to more

advantageously positioned than the purely foreign ones in the
fledgling organised India's retailing industry.

• These drawbacks present opportunity to international and/or

professionally managed Indian corporations to pioneer a modern
retailing industry in India and benefit from it.

• The prospects are very encouraging. The first steps towards

sophisticated retailing are being taken, and "Crossroads" is the best
example of this awakening. More such malls have been planned in the
other big cities of India.

• An FDI Confidence Index survey done by AT Kearney, retail

industry is one of the most attractive sectors for FDI (foreign direct
investment) in India and foreign retail chains would make an impact
circa 2003.

Retailing in India: Trends and opportunities

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Retailing - no marks for guessing this is the most active and attractive sector
of the last decade. While the retailing industry itself has been present
through history in our country, it is only the recent past that has witnessed so
much dynamism. It's the latest bandwagon that has witnessed hordes of
players leaping onto it. While international retail store chains have caught
the fancy of many travelers abroad, the action was missing from the Indian
business scene, at least till recently.

The emergence of retailing in India has more to do with the increasing

purchasing power of buyers, specially post- liberalisation, increase in
product variety, and the increasing economies of scale, with the aid of
modern supply and distribution management solutions.

A definition of retailing is essential in order to be in a position to assess the

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

The emerging sectors

Retailing, one of the largest sectors in the global economy, is going through
a transition phase not only in India but the world over. For a long time, the
corner grocery store was the only choice available to the consumer,
especially in the urban areas. This is slowly giving way to international

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formats of retailing. The traditional food and grocery segment has seen the
emergence of supermarkets/grocery chains (Food World, Nilgiris, Apna
Bazaar), convenience stores (ConveniO, HP Speedmart) and fast-food
chains (McDonalds, Dominos).

It is the non-food segment, however that foray has been made into a variety
of new sectors. These include lifestyle/fashion segments (Shoppers' Stop,
Globus, LifeStyle, Westside), apparel/accessories (Pantaloon, Levis,
Reebok), books/music/gifts (Archies, MusicWorld, Crosswords, Landmark),
appliances and consumer durables (Viveks, Jainsons, Vasant & Co.), drugs
and pharmacy (Health and Glow, Apollo).

The emergence of new sectors has been accompanied by changes in existing

formats as well as the beginning of new formats:

o Hypermarts:

o Large supermarkets, typically 3,500-5,000 sq. ft.

o Mini supermarkets, typically 1,000-2,000 sq. ft.

o Convenience stores, typically 750-1,000sq. ft.

o Discount/shopping list grocer

The traditional grocers, by introducing self-service formats as well as value-

added services such as credit and home delivery, have tried to redefine
themselves. However, the boom in retailing has been confined primarily to
the urban markets in the country. Even there, large chunks are yet to feel the
impact of organised retailing. There are two primary reasons for this. First,
the modern retailer is yet to feel the saturation' effect in the urban market

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and has, therefore, probably not looked at the other markets as seriously.
Second, the modern retailing trend, despite its cost-effectiveness, has come
to be identified with lifestyles.

In order to appeal to all classes of the society, retail stores would have to
identify with different lifestyles. In a sense, this trend is already visible with
the emergence of stores with an essentially `value for money' image. The
attractiveness of the other stores actually appeals to the existing affluent
class as well as those who aspire for to be part of this class. Hence, one can
assume that the retailing revolution is emerging along the lines of the
economic evolution of society.

Spread of organised retailing:

Organised retailing is spreading and making its presence felt in different

parts of the country. The trend in grocery retailing, however, has been
slightly different with a growth concentration in the South.

However, the Mecca of retailing is undoubtedly Chennai. What was

considered a `traditional', conservative' and `cost-conscious' market, proved
to be the home ground for most of the successful retail names - FoodWorld,
Music World, Health and Glow, Vitan, Subhiksha and Viveks -to name a
few.

The choice of Chennai as the `retail capital' has surprised many, but a variety
of factors acted in its favour. Chennai, in spite of being a rapidly growing
metropolis offers reasonable real estate prices, one of the most critical
elements for the industry. Chennai has been witnessing a high industrial
growth and increasing presence of the MNCs, both in the IT sector as well as
outside it. The industrial boom has led to the emergence of new residential

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areas with aggregation of professionals as well as a rapid increase in the
number of `double-income' households and growth of the nouveau
riche/upper middle class with increased purchasing power. This has been
combined with the increasing need for touch and feel shopping (especially
for the large migrant population). All the factors have acted favourably in
nurturing the industry.

Consumer- the prime mover

A variety of factors seem to influence the growth in the retailing industry.

`Consumer Pull', however, seems to be the most important driving factor
behind the sustenance of the industry.

In this context, A. F. Ferguson & Co. had carried out a brief survey among
consumers across income segments to understand their spending pattern. An
analysis of the `monthly purchase basket of the consumers surveyed
indicated that the average monthly household spend on food and grocery
related items varied across income segments. For instance, in the case of
upper income households, the average spend was around Rs 4,200 per
month. As against this, the average spend in the case of a middle income
household was around Rs. 2,850 and lower income households Rs. 1,250 per
month. (This is computed from a sample of 100 customers having an
average family size of four.)

Based on the distribution of the more than 15 lakh households in Chennai

across income segments and the average spend, a conservative estimate of
the grocery retailing potential at Chennai will be around Rs. 300 crores.

Besides increasing purchasing power, a variety of other factors also seem to

fuel the retailing boom. With increase in double-income households and

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working women, there is an increasing pressure on time with very little time
being available for leisure. In this scenario, consumers are seeking the
convenience of one-stop shopping, whereby they could have better utility of
time. They are also seeking speed and efficiency in processing, as a result.
Being more aware, consumers are on the look-out for more information,
better quality and hygiene as well as increased customer service. These
changes in consumer behaviour also augur well for the retailing industry.

However, in India there are no uniform trends with respect to consumer

buying behaviour. Organised retailing has definitely made headway in the
upper class. However, even in this segment, items such as milk, fruits,
vegetables and a significant portion of `through-the-month' purchases seem
to be done at traditional outlets. The middle income class prefer shopping for
processed food and personal care in supermarkets and fall back on
traditional outlets for bulk shopping. Organised retail outlets seem to be
associated with branded items/special purchases. Organised retailing does
not seem to have made an impact on the lower class, except for `curiosity'
shopping.

The biggest question before organised retailers therefore, is whether this

really means a huge untapped potential for the organised retailers and
whether the conversion in mindset going to be easy.

Emerging trends

The single most important evolution that took place along with the retailing
revolution was the rise and fall of the dotcom companies. A sudden concept
of `non-store' shopping emerged, which threatened to take away the
potential of the store. More importantly, the very nature of the customer

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segment being addressed was almost the same. The computer-savvy
individual was also a sub-segment of the `store' frequenting traffic.

Internationally, the concept of Net shopping is yet to be proven. And the

poor financial performance of most of the companies offering virtual
shopping has resulted in store-based retailing regaining the upper hand.
Other forms of non-store shopping including various formats such as
catalogue/mail order shopping, direct selling, and so on are growing rapidly.
However, the size of the direct market industry is too limited to deter the
retailers. For all the convenience that it offers, electronic retailing does not
suit products where `look and see' attributes are of importance, as in apparel,
or where the value is very high, such as jewellery, or where the performance
has to be tested, as of consumer durables. The most critical issue in
electronic retailing, especially in a country such as ours, relates to payments.

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Retail management skills

It is a fact that the retailing industry is in its starting phase in our country.
The benefits of organised retailing will only be felt once an equitable scale is
achieved. This to a large extent depends on the store size, the walkthroughs,
bills per customer per year, average bill size and the revenue earned per sq.
ft. But besides resources and bottomline, a variety of other aspects need to
be in place for tasting success. The need for qualified and trained manpower
is of utmost importance. The need for specialised skills is increasingly felt in
the areas of:

• Strategic management - strategising, targeting and positioning,

marketing and site selection, among others

• Merchandise management - Vendor selection, inventory management,

pricing and so on

• Store management - Layout, display, customer relationship, inventory

management, etc.

• Administrative Management - Human resources, finance, marketing

and so on

With the need for specialised skill set, retailing has become a specialised
area of knowledge and training. The RPG School of Retailing and the
introduction of specialised retailing courses at various business schools,
including the IIMs, stand testimony to this.

Technology impact

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The other important aspect of retailing relates to technology. It is widely felt
that the key differentiator between the successful and not so successful
retailers is primarily in the area of technology. Simultaneously, it will be
technology that will help the organised retailer score over the unorganised
players, giving both cost and service advantages.

Retailing is a `technology-intensive' industry. It is quoted that everyday at

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

Today, online systems link point-of-sales terminals to the main office where
detailed analyses on sales by item, classification, stores or vendor are carried
out online. Besides vendors, the focus of the retailing sector is to develop the
link with the consumer. `Data Warehousing' is an established concept in the
advanced nations. With the help of `database retailing', information on
existing and potential customers is tracked. Besides knowing what was
purchased and by whom, information on softer issues such as demographics
and psychographics is captured.

Retailing, as discussed before, is at a nascent stage in our country. Most

organised players have managed to put the front ends in place, but these are
relatively easy to copy. The relatively complicated information systems and

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underlying technologies are in the process of being established. Most
grocery retailers such as FoodWorld have started tracking consumer
purchases through CRM. The lifestyle retailers through their `affinity clubs'
and `reward clubs' are establishing their processes. The traditional retailers
will always continue to exist but organised retailers are working towards
revamping their business to obtain strategic advantages at various levels -
market, cost, knowledge and customer.

With differentiating strategies - value for money, shopping experience,

variety, quality, discounts and advanced systems and technology in the back-
end, change in the equilibrium with manufacturers and a thorough
understanding of the consumer behaviour, the ground is all set for the
organised retailers. The bottomline could look brighter, after all!

It would be important to note, however, that the retailing industry in India is

still a `protected industry'. It is one of the few sectors which still has
restrictions on FDI. Given the current trend in liberalisation, it will not be
long before the retailing sector is also thrown open to international
competition. This will see a further segregation of the international retailing
brands and the domestic retailers, thereby injecting much greater dynamism
into the market. That will be when the real action will begin. In the second
article on retailing, we uncover a model for retailers to handle the emerging
scenario.

Industry Players

What is the reason that big groups like Tatas, ITC, Piramal Enterprises and

25
 S.Kumars are putting huge amounts of money into retailing? The answer is
very simple. Now, just a couple large organized retailers are in the market
whose turnover crosses Rs. 100 crore. And in this sector anything above 25
crore counts you as a major player.
Consultants like A.T.Kearney have predicted that by year 2005 retailing will
be worth Rs. 1,60,000 crore in India. Table 1 gives an overview of the main
players in this sector along with their expansion plans:

Table 1: India’s Large Retailers

Turnover
Space (in Expansion Plans (to be achieved by
Company (in Rs Outlets
sq ft) 2002)
crores)
27 Food
World 50 Food World
2 Music 8 Music World
RPG 156 200 000
World 18 Health & Glow outlets for total
4 Spencer’s turnover of 23.75 crores per month
outlets
1 each in
Mumbai,
Shopper’s Bangalore, !5 –17 outlets if FIPB approves
130 100 000
Stop Hyderabad, Foreign Equity
Delhi,
Jaipur
8 in Chennai
10 stores in Chennai and Bangalore
3 in
Vivek & Co 90 100 000 7 in Hyderabad, Vishakapatnam &
Bangalore
Vijayawada
1 in Salem

26
 17
Supermarke 4 outlets
Nilgiris 76 ts 80 000 30% growth in terms of turnover
14 289 stores by 2007
Cakeshops
12 stores
Pantaloon 60 40 90 000 11 superstores
franchises
15
NANZ 40 Supermarke 70 100 N.A
ts
11
25 outlets
Vitan 25 Department 50 000
100 crore turnover
al Stores
Bookstores
in
Ahmedabad,
Crossword 16 Delhi, 27 000 25 stores
Mumbai,
Pune
Goa, Nasik
1 in Chennai
Plans to open Mall in Calcutta with
Landmark N.A and 18 000
Emami
Coimbatore
Kemp Kemp City retailing cum
2 stores in
Chain of N.A 125 000 entertainment development, over 200
Bangalore
Stores acres
Charagh Mumbai Will remain single location store
N.A 10 000
Din store

Note: N.A -Not available

Cross Roads, another major player promoted by the Piramal Enterprises is
making waves in Mumbai. It started its operations in August -September

27
1999 and details of its operations were not available to incorporate in this
report.

Major Players At A Glance

RPG:
The expected growth and potential in this sector have prompted the bigwigs
like RPG to go in for expansion plans. The RPG group, now having Rs.156
crore turnover from organized retailing, is expected to pump in Rs.120 crore
into its expansion ventures and expects Rs.2000 crore turnovers from
retailing by the end of year 2003. Its growth plan for its FoodWorld chain of
supermarkets will be boosted by the decision of Dairyfarm (the retail
division of Jardine Matheson), its technical partner to exercise its option of
taking 49% in FoodWorld.
According to Mr. Harsh Goenka, Chairman, RPG Enterprises, "moving into
retailing was part of our plan to change our business mix from commodity
based business to service based ones."
Shopper's Stop:
Shopper's Stop launched its Mumbai branch in 1991 with their men's line
soon followed by women's and children clothes. The concentration was on
"one room, one ambience, and one experience" and its success resulted in
opening new branches in Bangalore and Hyderabad. Cashing on in the
current consumerist trend, the shop not only offers products but also offers
an avenue to channelise operations. For customers who cannot afford a John
Miller or Wendell Rodericks original once a year moderately priced truck
show is held at Shopper's Stop.

28
Vivek & Co.:
Vivek & co. in Chennai is good example of a multibrand store. The
company operates three huge stores in Chennai and one in Bangalore with a
combined area of over 1,00,000 sq. ft. Its price policy is low and its main
attraction is the discount sales held annually on the New Year's Day. Vivek
& co. recognising the inherent dangers in too much bigness is developing
about fifteen small store with not in-depth product representation. Fierce
competition and the urge to capture the untapped market, made the retailer
take this decision. Vivek & co.'s presence is however largely confined to the
south of India.

CrossRoads :
A stand-alone departmental store that spans four floors and takes up 35,000
sq.ft. A recent development in Mumbai promoted by Piramal Enterprises
defined its target audience as families that have annual income of 2,00,000
to 20,00,000. The emphasis is on their target unit which is the family and not
individual. Experience is what it aims at. Crossroads hosts Mumbai's largest
video games, which prove to be a good attraction for children and even
elders. McDonalds has its outlet here as it feels the spill over traffic has the
potential to be enormous. This traffic is being accelerated through cross
promotions e.g. an event in one outlet can win the customer a prize from
another.
Situated in a strategic location in Mumbai, Crossroads has become a star
attraction within few months of starting its operations.

29
Environmental Analysis

I) PEST Analysis:
Now, in a particular geographic region, the environment there affects the
retailers in the region in various ways. We have studied the effects under the
following heads:
-Political environment
-Economic Environment
-Social (Socio-Cultural) Environment
-Technological Environment

a) Political Environment:
With the opening up of the economy, more and more MNC's have pervaded
the Indian Business arena, through joint ventures, franchisees or even self-
owned stores. The very first MNC getting into the business was Spencer's, a
tie up between the RPG Group and the Dairy Farm International, a $ 10 bn
Hong Kong based company, and a part of the Jardine Mathenson group.
Government uses regulation to prevent development of monopolies, which
results in restricted competition and fixed prices. (MRTPC). Government
also propounds price competition laws and unfair trade practice laws.
Retailers must understand what rights they have in pricing merchandise,
what provision they should make for customer relations, what rights and

30
responsibilities they possess when making a sales, what rights their
employees have and what liabilities they may face while selling products to
the consumers.

b) Economic Environment:
The type of economic system (capitalism or socialism etc.) existing in a
country has a direct bearing on the potential for and the development of the
retailing industry in that country. A retailer cannot escape the effects of the
factors in the macroeconomic environment, be it domestic or global that
influences the local market.
Inflation, unemployment, interest rates, tax levels, the GDP and the rate of
real growth in GDP (Inflation adjusted) are some aspects of the economy
which a retailer must cope with.
Real growth makes more income available to people who then tend to spend
more, leading to higher sales and more profits for the retailers. However
growth also leads to higher competition in the long run. As the economy
expands, higher demand levels lead more firms into the market, trying to
fulfill the consumers' needs. The inflation (i.e. increase in price) leads to less
goods being bought at higher prices. As the retailers' cost of goods increases,
they attempt to pass on this increase to the consumers. However, it is often
not possible to pass on the entire amount to the consumer, hence resulting in
cuts in the retailers' profits.
With the increase in Purchasing Power Parity (PPP) and the disposable
income of the Indian consumer, retailing is catching up at a very fast pace in
the country.

c) Social Environment:

31
As discussed under the title 'demographic and lifestyle trends' above, the
demographic trend and lifestyle patterns, of the society that a retailer intends
to serve, decide the retailer's strategy.
Traditionally, children seldom accompanied their parents while grocery food
shopping. Shopping for children was confined to that during festivals when
dresses were brought for them. But, in the present day, due to scarcity of
time, working parents prefer to spend as much time as possible with their
children and this includes their shopping hours also. As the organisation
retail sector offers the option of entertainment along with shopping, the
younger couples opt for these retail outlets for shopping.
Speaking at KSA Retail Summit, 2000, Peter Lau, Chairman of Giordans
International, Hong Kong, said, "It is the format of consumer expectation
that changes, not the goods or services they want.” This is depicted in the
following diagram:

32
KSA Technopark conducted a study on consumer attitude towards shopping
in association with the market research firm ORG- MARG in January and
February 1999. The study was spread over the four zones of India viz.
North, South, West and East and covered a random sample of 7300
respondents in twelve cities. Findings of the study are given in Annexure 3.
The results of this study clearly reflect that the buying patterns do vary
according to the customs and lifestyle of a region. In the south
approximately seven hours are spent on shopping per week. This figure is
the highest amongst the four zones, which probably explains the more spurt
of new malls and supermarkets in the south than in the other zones.

Further, the study has attempted to find out what a customer expects out of a
store. Here, the six attributes desired by most number of people (65% and
above) are polite and courteous salespeople, quality of products, non
intrusive sales persons, value for money, attractive displays and range of
products.

Although desired by a very low percentage of people (only 10%) yet the
attribute of an entertainment centre for children has also figured in.
That is to say, apart from quality and range of products, value for money and
attractive displays, the human touch has a vital role to play. Smart, polite
and courteous sales people might make all the difference for a store, which
is like any other in terms of its product offerings.
There is also emphasis on schemes and promotions, which, as the study
ratifies, do pull customers. Further the trend is towards more convenience
and flexibility in terms of exchange/ return policies, which play a vital role
in encouraging the purchase.

33
d) Technological Environment:
Technology is probably the most dynamic change agent for the retailing
industry. The computerization of the various operations in a retail store,
including inventory management, billing and payments as well as database
(of customers) management, widespread use of bar coding, point -of-sale
terminals and Management Information System has changed the face of
retailing drastically. Apart from providing the retailers with better and
timelier information about their operations, the technology also does the job
of preventing theft, promoting the store's goods and creating a better
shopping atmosphere. These can be done with the help of closed circuit
televisions, video walls, in-store video networks, kiosks and other forms of
interactive applications ranging from CD-ROMs to virtual reality to let
customers select and buy products.
They make the customer's life a lot easier by facilitating the use of
developments like credit cards. Toll free 800 numbers have brought about a
revolution in consumer's ordering and feedback mechanisms. These also
pave way for tele-shopping and net-shopping. Emerging technologies will
also facilitate just-in-time management of certain products within the store.
These trends are already visible in the music and greeting card industries.

II) Porters Five Forces:

As yet, we have been analysing the retailing industry in the context of the
macro-environment - consisting of Political laws, Economic regulations,
Social customs and Technical standards, in the land of a particular retailer.

34
Now we move on to the analysis of the industry in the context of
competition prevalent within the players of the industry. This addresses the
need to identify those factors in the environment, which influence the
capability of a firm to achieve a competitive advantage and to position itself
to such advantage.
Players at different levels of scale of operations have to confront different
levels of competition posed collectively by the five forces- threats of new
entrants, rivalry amongst the existing firms, and pressure from the
substitutes and the bargaining power of buyers and suppliers. Different
forces take on prominence in shaping the competition at and also across
different levels.

1. Threat Of Entry:
To an industry depends on the extent to which there are barriers to entry,
which most typically, are one or more of the following six:
i. Economies of scale are not such a big issue in the retiling industry. The
scale of operation might be small for a firm to begin with and it can, in its
initial stages, focus on a specific target segment whose needs can be
addressed by that scale of operations.
But these surely gain importance once expensive technological
advancements (which may be beyond the reach of small retailers) come into
picture. For instance, it may be difficult for the small firms (or retail outlets
or chains) to use fully automated inventory systems or toll-free 800 numbers
or in-store video networks or other interactive applications. As a result, they
might lose out on the grounds of efficiency, in competition with their larger
competitors. So they must adapt by concentrating on providing more
personalized services to the target segment seeking it. Hence this factor is

35
mainly responsible for triggering competition between large and small
retailers.

ii. Capital requirements again depend on the scale of operations. Franchisers

have an edge over the corporate retail chains in this regard as they are able to
form national / international networks without high investment of their own.

iii. Cost advantages independent of size (scale) arise due to the experience
gained by early entrants and the relationship they have established over time
with their suppliers, manufacturers and customers. These might also pose
difficulties in handling market and operational problems. This is why
absolutely new local entrant face severe competition from the large retail
chains operating worldwide who might want to plunder their regions, with
the expertise that they have gained as a result of years of experience. On the
top of it, with the help of lucrative offers, they tie-up with the existing local
players who know the area well. Such an example is Spencer's tying up with
RPG to open Food World Dairy International.

iv. Expected Retaliation from the existing firms (at large scales) is rising
over time or due to recent trend of foreign collaborations, they now have the
financial muscle to combat any sort of competition relating to price or
promotion. For small and local retailers, this is not such a big issue.
v. Legislation regarding location, prices, number of employees etc. affects
the operations or even establishments of a new entrant - at large as well as at
small scales. Today legislation has contributed towards increasing
competition tremendously by allowing entry of foreign players,

36
independently or as a joint venture with the local players. But it works
towards keeping a check on entry by implementation of FIPB regulations.

vi. Differentiation: postulates that new entrants might have to spend heavily
to overcome existing customer loyalties, which established firms are
enjoying due to past advertisement and customer service or simply due to
early entry into the market. To attract its target segment, a retailer will have
to project some benefit(s) that he/she is offering over and above the
offerings of the existing players.

2. Intensity Of Rivalry Among Existing Competitors is High:

In case of tangible products in retailing industry as the existing feature in the
consumer market is brand loyalty (i.e. loyalty to a manufacturer's product)
rather than store loyalty. Consumers look for a particular brand which they
have used/ consumed/ heard about, which might be available with a number
of different types of retailers- big and small. Today big supermarkets or
malls with specialized retailers do pose a threat to the neighbourhood retail
stores, which are now used for fulfillment of immediate and small needs
only. On the other hand, large professional retailers face competition from
more personalized retailers who might be more comfortable with offering
facilities like credit on purchases, return and exchange offers, specialized,
hard to get and better quality items and extended business hours in order to
retain whatever customer base they have and not let it be lured away by
competitors. They just have to niche around big retail stores and malls by
improving customer service, tailoring selection to customer needs and not
competing directly with their product lines. Big retailers cannot match small
ones on value. They live on hype and not reality. E.g. Big retail stores

37
(chains) like Wal-Mart create illusion that they always undersell the market,
based on a handful of heavily promoted items at rock bottom prices, but the
rest of their inventory is not as price competitive.
According to the research published in Business World - May 1999, few
large retailers do have large turnovers- 35.2% of the total retail turnover. But
that still leaves a bulk of the market in the hands of the medium and small
retailers.
Mr. R Gopalkrishnan of Tata Sons has opined that- "In India, smaller
retailers continue to grow contradictory to the normal economic
development where small retailers decline in numbers with their emergence
of the large players." Experts feel that the size of population and the high
unemployment rate have contributed to their growth of small retailers. With
so many looking for work, setting up a small outlet is relatively a simple
thing to do.
Lastly, high (10%) industry growth has turned competition into a market
share game.

3. Pressure From Substitutes emerges mainly from two factors:

1. Switching costs for customers to the substitute.
2. Buyer willingness to search out for substitutes.
Also the threat of substitution may take four different forms, each of which
we shall now discuss with reference to above factors.

i. Product-for-product substitution -
The growing popularity of traditional non-store retailing base of catalog mail
orders, direct mailers, telephone sales, door-to-door selling, supplemented
by recent innovations like vending machines, in-home video tape

38
infomercials, on-line CD ROM systems, tele-shopping and net shopping
poses a threat to store retailers. These media do provide the customers with
ease of shopping, some entertainment and even more information about
range of products. But still there are reasons due to which these media are
not catching on quickly especially in India. E-tailing transactions are less
than a quarter of a percent of the total retail business in India 8. Even in
western countries, it accounted only for 20% of the total retail spending.
In the US, store based retailers, altered by analyst's predictions that online
retail could account for as much as 10% of the total US retail sales by 2003,
are queuing up to the internet. However, the situation in India is little
different. With limited penetration of computers and Internet, will online
retailing (e-tailing) catch up is a big question mark. Retailing is expected to
change with the rapid development of new online sales and distribution
channels that can be used from anywhere but the extent to which it will grow
in India depends on the shift in the mindset of Indians whose current state
gives rise to many deterrents As described in the section on challenges (e-
tailing) these substitutes need to take care of these hindrances in order to
grow in magnitude. Furthermore, instead of complete substitution, these
media should be looking at possibilities of collaboration with the existing
store retailers.

39
ii. Substitution of need -
We take switching from one store or one type of store (e.g. small
neighourhood retail outlet) to another (e.g. a big department store) as an
example of this type of retailing. In this case, the buyers might be looking
out for new experiences and might not mind the nominal switching costs
(like longer distance to be covered)

iii. Generic substitution-

Generic Substitution or doing without is not possible in case of retailing
industry. Retailing will definitely remain, in one form or the other, as long as
the manufacturers manufacture and consumers consume. Retailing does not
seem to become extinct even in the future. The issue that remains to be
addressed is just - what forms it keeps evolving into. One most prominent
form visible today is e-tailing.

4. Bargaining Power Of Suppliers is high if:

i. There is high supplier concentration (i.e. few number of suppliers for the
industry). In case of the retailing business, large numbers of manufacturers
are competing for shelf space, resulting into low bargaining power of
suppliers in this context.

ii. There are other substitute products for sale to the industry. With large
numbers of firms manufacturing similar goods or providing similar services,
differentiation is what gives a competitive edge to some suppliers over
others. But again due to spade of brands in the market bargaining power of
suppliers is low even in this context. But in one specific case of exclusive
distribution or dealership bargaining power of suppliers may be high.

40
iii. The industry is not an important customer of the supplier group. This is
not at all the case here. Today, apart from probably factory outlets, retailing
is the only interface between manufacturers and consumers.

iv. The suppliers' product is an important input to the buyer's business.

Generally, this is not the case with individual suppliers, hence affecting their
bargaining powers adversely.

v. Switching costs from one supplier to another are high. This

again is not the case in most of the categories of retail sales expect for the
exclusive dealership of some firms.
vvi. There is threat of forward integration by suppliers. This might be a
threat in the long run. Signs are visible in the form of direct mailers, door-to-
door selling, tele-shopping and e-tailing.
Marketers across the FMCG category and the durable sector feel that the
retailer is going to be a powerful influence on buyers. A primary reason for
this is trust. Many families take goods on credit from the retailer and
moreover, spoilt goods are taken back by him. With all these facilities
thrown in, when he recommends a product, the consumer has no reason to
doubt him.

5. Bargaining Power Of Buyers is high:

Bargaining Power Of Buyers is high for the retailing industry because of
flux of retailers of varying sizes and types within the reach of consumers.
Hence because of nominal or no costs of switching suppliers (for the final
consumers) , these retailers are fighting for the fixed budget of consumers.

41
The customer in the past decade has become the key focus. The marketing
strategies revolve around him. From shopping, the trend has shifted to
shopping, entertainment and experience.

Challenges Ahead For Retailing

Organised retailing is not a bed of roses for the big players also. In addition
to the advent of Internet, various issues glare at retailing. Some of them are

Human Resource:
Big retail shops do not confine their target segments for employees to
undergraduates. Shoppers Stop broke the myth of MBAs not wanting to go
into the retailing career. Cross Roads and Spencer also hire MBAs to
manage their chains. However there still exists a gap between the supply and
demand of professionals. Mr. Goenka, chairman RPG Group, hopes that one
of the greatest challenges facing modern retailing in India is the availability
of trained personnel. In order to address the problem RPG Group has set up
a national retail Institute in Chennai, which, offers a variety of courses in
retail management for frontline, supervisory and managerial post.
Retaining the human resources is also a major challenge for these big
retailers. The bigwigs like Crossroads offer high compensation and create a
cohesive environment that makes an employee proud to be a part of such big
retail chains.
Space and Infrastructure:
To establish a retail shop/ Mall, the real estate and the infrastructure are very
vital. The expenditure and availability on both the accounts do hinder the

42
growth of the retail chain. The land ceiling restrictions and other state
restrictions on land use have prevented the growth of efficient retailing in
the cities. An average investment of about Rs. 5 crore is required to establish
a mall and that explains the rush of big companies into this business. Small
and individual retailers find it difficult to pour in that much of investment. In
addition to the initial investment, to combat e-tailing, expenditure has to be
incurred on technological side. This makes the retail projects less attractive
for the individual players.

Consumer Mindset Towards Discount Stores:

In India the concept of discount stores like Wall-Mart, at which genuine,
defect free international brands are available at 50% discount, is yet to catch
on. Still, the major section of customers is conservative and choosy and
prefers to go to a known retail shop than opt for a discount store. Very few
discount stores like SM2, Mumbai are at present operational. Its reach is
confined to major cities. Breaking the conventional mindset of the Indian
consumers that discount stores do not sell inferior goods will take some
time.

Rural Market- How To Penetrate?

Penetration into the rural market is what big retailers have to concentrate on
for growth. Attracting rural markets will be different from that of the urban
market. For example detergent cakes are preferred to powder and coconut oil
in bottle to sachets in the rural areas. The rural consumer are different from
the urban consumers as they are more price sensitive and their quantity of
consumption would be less as their share of wallet for shopping along with

43
entertainment is delineated. Food and agricultural inputs dominate the rural
consumers list and whatever is left would be used to fulfill aspirational
needs. Customers in the rural area are not urbanites without money. He has a
distinct identity and value system. One more challenge in the rural market is
that shopping habits vary according to seasons. During harvest time, the
spending of a rural consumer increases compares to other times. However,
penetration of television, increasing literacy levels, mobility between rural
and urban areas and telecommunication (STD Services) have increased their
awareness towards branded products and entertainment. Customized retail
shops would be a big success in the rural areas too if the right strategies are
adopted.

Indian Scenario -The Road Ahead

What retail might look like in India

Thanks to a massive population and indications of better levels of disposable

incomes side by side with awareness emerging, retail is being seen as a
massive emerging opportunity in India.

Naturally, since retail revolutions took place in the more developed markets
much earlier, the feeling is that India can draw from their experiences.
Although, given India's own unique characteristics, expectations are that as
the retail scenario evolves (surely rapidly now), the country will emerge
with its own retail models as well.

44
Yet, consultants say that there are enough models out there in the developed
part of the world that will find acceptance here, even though they may find
some modifications to suit local needs better. The challenge, really, is in the
re-invention.

There are certain formats these consultants feel can work in India:

• small stores, with complex but efficient supply chains

• small supermarkets that run on brand variety and tight

inventory control

• a mix of food and general merchandise stores

• out-of-town shoppatainment complexes

• mid-sized retail propositions within town limits

• small corner outlets with integrated home delivery

Effectively, then, leaving out hypermalls of the US kind, other retail models
are possible in India, though a model cannot really be moved across borders
piecemeal. What can come in piecemeal, however, is the supply chain
management model attached to a broad model that is being transferred.

Again, consultants say that you have to build on what's already there -- you
can't just wipe the slate clean and start afresh. And so the likes of catalogue
or mail order buying will not necessarily lose significance. Make it more
efficient and it can work. However, since in a lot of product categories, the

45
consumer may prefer a touch-and-feel before taking a decision, these kinds
of formats can be supported by display outlets sans on-premise stocking.
Take your pick, order and get it all delivered at home. E-retailing could also
adopt something like this combination. There are no strict rules anywhere,
anymore. And rural India? Maybe that's where a modified multi-product
hypermart could work, is the opinion. And the best model? No, there are no
ideal models - adopt/adapt/develop the best fit from what's out there in the
West. And here in India.

The bottomline: there are basic commonalities in retail evolution in any

market. As incomes rise, value additions go up. As value adds go up, retail
models gain significance. And then come shakeouts and consolidations.
That's the ground reality. You just can't shake that.

46
What Drives The Industry?
Demand determinants

The actual composition (the distribution of the types of retail stores) of the
retailing industry in a particular geographic area is determined by the
following factors:
·Demographic Trends
· Life style Trends

I Demographic trends:
Demographic trends involving population size, the number of households,
population mobility, its location and income dominate a retailer's strategic
planning for the future, hence qualifying him for a particular category from
the ones described above. These factors have been elaborated upon in
Annexure 2.

II Lifestyle Trends:

Life-styles represent the ways in which individual consumers; families or

households live and spend time and money. The life-style trends, in
correlation with demographic trends, do have a great impact on the structure
of the retailing industry. The trends regarding some factors must be
understood and adapted to by the retailers.

DEMOGRAPHIC FACTORS

1.Population Size and age Distribution

47
Population size and age distribution determine what the retailers must be
offering and to which segment of the market, depending upon their goals.
Further, factors like average life expectancy, birth rate, marriage age,
average number of children, family life cycle define the requirements of the
market and the firms (retailers) should act accordingly. Applying the
traditional family life cycle to retailers.

2. Number of households
Number of Households and their composition have key implications for
retailers. These will influence the purpose (self use or to be used by others)
of purchases made. These factors also determine the types of goods and
services for which the demand is high and hence in which there is scope for
retailers to make money.

3. Population mobility
Population mobility results into :
• Prosperity of well-known chains and franchisees.
• Higher sales of national and regional brands.
• Higher purchase levels, especially of clothing and home related goods
and services, because some items are discarded in moving to new
environments (particularly if the moves are long distance and there are
climate changes.
• Boom in unified, nationwide credit system, which can ease and thus
encourage purchase transactions.

48
 • Necessity of large scale advertising which will be helpful in
generating and maintaining a retailers image. E.g. Food World and
Music World started in the south and are catching up in the northern
and western states of India. Crosswords has franchised outlets to
enable better reach.

4. Location
Location of the population determines what it will buy and where. It is
location of the buying population, which plays a vital role in deciding
• Locations of the retail units.
• Opportunities for various types of retailers and also various types of
items such as furniture, lawn mowers and snow blowers.

5. Working Women
Their median ages and composition of their families along with their desire
of combining the roles of working women, wife and/or mother has these
implications for retailers. Workingwomen :
• Are concerned with convenience and ease of performing household
duties and hence are apt to spend large amounts for major appliances
and household equipment, especially when they are time saving
• Are more independent in their purchases as they seek individualism
and personal identity; are self confident and individualistic
• Are prone to use leisure time for pleasure (The above two points have
a strong influence on the market for ready-made clothing, sports
goods and car-rental agencies)

49
 • May be unable to shop during regular retail hours, thus creating
opportunities for direct marketers and retailers with extended hours
• Have less time to prepare meals - hence help in growing the
importance of prepared foods, convenience foods and quick serve
restaurants
• Increasing family affluence, thus expanding the purchase of luxuries
and are demanding as consumers.
• Will be more responsive to advertisements placed in evening time
periods, particularly on television.
• Females are spending 60% on shopping entertainment and eating out
whereas men are spending about 50%

6.Income
Higher incomes broaden markets for luxury goods and services. They also
lead us to the anticipation of increase in the demand for high quality services
and wider assortments. At the same time retailers should also keep in mind
that due to unemployment and inflation, there are consumers with low-
income levels who also need to buy goods and services.

PSYCHOLOGICAL FACTORS - LIFE STYLE TRENDS

1. Gender Roles
The increasing number of working women (with characteristics as described
above) is altering the life styles significantly, not only of women themselves,
but also of the males. Larger number of males is now fulfilling the roles that
were thought to be females in the past. These trends reflect on the demand

50
for better and more services and for more automated equipment, which the
retailers can encash.

2.Consumer sophistication and confidence

With increasing number of consumers who are cosmopolitan in tastes and
styles and more knowledgeable and demanding than before, the expected
outcomes are:
- Decreasing desire for conformity
- More willingness to experiment
- Insistence on detailed information
- Sharply stronger demand for quality in goods and
services

3. Poverty of time

Poverty of time results from the trend of increase in the number of working
women, increases in distances between locations of work and home and
increase in the number of people working at second jobs. This leads
consumers to place a high value on goods and services minimizing time
expenditure may be sought by consumers in one or more of the following
ways:

• Emphasizing physical fitness

• Emphasizing or de-emphasizing material possessions and status

symbols

• Attain individuality ("doing one's own thing")

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 • In responding to consumer desires for self-fulfillment, the retailers
must act according to their understanding of the motivations of their
target markets.

• These factors looked upon in the context of a particular geographical

region, decide the numbers of various types of retailers functioning in
that markets.

DEMAND FORECASTING FOR SHOPPERS STOP

After studying retailing in microscopic view we studied Shoppers Stop for

the purpose of Demand Forecasting. The figures for the last 10 years were
made available to us by an employee of this retail chain. And on the basis of
these we have prepared a Demand Forecast for the same for the year 2002.

Demand Forecasting will help Shoppers Stop in the following ways:

1. Helps in making decisions regarding long term financing

2. Inventory control
3. Arrange appropriate promotional efforts
4. Fixing the right price
5. Prepare Manpower requirements

These are some of the few requirements of demand forecasting.

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Thus by forecasting Shoppers Stop can exactly determine the nature and
trend of goods demanded and personnel required to sell the same etc. this
will yield good returns and also cut costs in the long run.

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Future of Retailing : E-Tailing

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The retailing community has accepted and realised the fact that the
consumers want to choose between the variety of brand and value for
money is their topmost priority. The big retailers have to deliver a
consistent branded experience. Crossroads in Mumbai is an endeavour
to achieve the same, though its target segments the upper and upper
middle class. Technology has made a difference in retailing also. E-
tailing (through internet) is considered to be eroding the store retailing
slowly. Is it the real picture? With the concept of B2C (Business to
Consumer Transactions over internet) coming up at a fast pace, an
intimate two-way access is emerging between the retailer and the
customers. Customised products are offered to the customers. For
instance while one buys a book through Amazon.com, a synopsis of the
book, its reviews, its prominent readers and other books of the same
author are some of the information provided to the customers. Within
minutes of placing an order, one gets a confirmation thus saving time
and satisfying the customer. The penetration level of the internet is
increasing at a pace that the reach would be equivalent to what
television took about 40 years and that cable about 15 years .
In online services and the web, the retailers seek out the customers
unlike the traditional model where the customer goes to the store and
locates the product. The busy life-style of the consumers in this hectic
era, tilts the preference needle towards the online retail model.
However, B2C success depends on the behavioural and attitudinal
changes in customers. First, the customers have to be familiar with
Internet and have to be informed about buying on the net. Then, the
customers have to build the mentality to trust the e-sellers and be

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convinced on the products quality. The KSA customer 2000 study
showed that only 1% have ever used net shopping though 40% are
aware of it. But 10% of the representatives do not trust the quality in
net shopping. This shows e-tailing (stand alone) has a long way to go in
India.
The major advantage of the retailers in India is that, most of the
products operate on the push factor than pull factor. In order to
popularise their products the manufacturers have to attract the
customers to feel the products, physical existence and this is enabled by
the retailers.
Instead of viewing e-commerce as a threat for retailing the big retailers
can embrace technology and provide value added and personalised
services to the customers. In the recent times, companies like
ARCHIES have used technology to their advertisement and increased
their sales. By promoting, Fathers day, mothers, sisters, friendship,
valentines, and even egg and Love at first sight days, Archies has been
successful in pulling crowd in their galleries all over India.

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The big retailers can learn the lesson from Archies. A recent KSA
Technopark survey findings showed that Apparels and Consumer
durables occupy the top slot in priority for shopping in India. Apparels
and Consumer durables and for that matter even footwear are those
products which gives satisfaction when you feel it. How can the big
retailers use technology in this? Technology is so flexible that it can
coexist with business anywhere. The big retailers have to have their
websites to combat the competition from e-tailing. For instance for
clothing, the big retailers can show the variety and design offered by
them through the net. A virtual experience can be provided and the
customer can have n option whether to visit the shop or shop from
home. If the virtual round through the shop is irresistible, the customer
will definitely come to the shop for an experience at least. Thus, in this
era of Information Technology store and retailers have to become
technology savvy to satisfy customer preferences. The consumer
mercantile activities grouped into three phases, pre-purchase
preparation, purchase consummation and post-purchase interaction
have to be properly incorporated with technology.

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