The 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.
In the first phase, new entrants create awareness of modern formats and raise consumer expectations. During the second phase, consumers demand modern formats as the market develops, leading to strong growth. As the market matures, intense competition forces retailers to invest in back-end operating efficiency.
n the final phase, retailers explore new markets as well as inorganic opportunities as growth tapers off. Supply chain management (SCM) attains top priority in the third phase of evolution.
Fierce competition forces retailers to respond quickly to changes in the market, bringing forth the importance of SCM in handling availability of stock, supplier relationships, value-added services and cost cutting.
Traditional retailers are expected to enhance their investments in supply chain, whilst new entrants are likely to look at supply chain first broadening their national reach.
What will fuel the boom?
Where are the road-blocks?
The road ahead
4 reasons why retail is booming May 31, 2005
It has been a decade-and-a-half since India embarked on an ambitious economic liberalisation programme. Over the last five years, many of its benefits have manifested themselves and one of the areas where growth is clearly reflected is retailing.
The latest pronouncements of Finance Minister P Chidambaram about the sector have fuelled interest in stocks from the segment. Let's turn the spotlight on the factors that triggered the exponential growth in the sector.
Primary reasons
The prime reasons that fuelled this boom include favourable demographics, rising consumer incomes, real estate developments, especially the emergence of new shopping malls, availability of better sourcing options - both from within India and overseas - and changing lifestyle.
These factors have transformed hitherto savings-oriented and conservative Indian consumers and made them akin to those in developed markets.
Organised versus unorganised
In a sharp contrast to the retail sector in developed economies, retailing in India - though large in terms of size - is highly fragmented and unorganised. With close to 12 million retail outlets the country has one of the highest retail densities worldwide.
Retailers include street vendors, supermarkets, department stores, restaurants, hotels and even two-wheeler and car showrooms.
Counter stores, kiosks, street markets and vendors, where the ownership and management rest with one person, are classified as traditional or unorganised retail outlets.
These formats typically require employees with low skills and account for around two-thirds of the sector's output. These are highly competitive outlets, with minimal rental costs (unregistered kiosks or traditional property), cheap labour (work is shared by family members) and negligible overheads and taxes.
However, unorganised retailers suffer due to poor shopping experience and inability to offer a wide range of products and value-addition due to lack of sourcing capabilities.
The modern Indian consumer is seeking more value in terms of improved availability and quality, pleasant shopping environment, financing options, trial rooms for clothing products, return and exchange policies and competitive prices. This has created a rapidly growing opportunity for organised, modern retail formats to emerge in recent years and grow at a fast pace.
Inefficiency in the existing supply chains presents further opportunity for organised players to draw on this large market even as lack of consumer culture and low purchasing power restricted the development of modern formats. Migration from unorganised to organised retail has been visible with economic development in most countries.
Changing age profile and disintegration of joint family
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India powers ahead on retail boom December 03, 2004
A retail revolution is sweeping through India. Organised retailing has grown from just Rs 5,000 crore (Rs 50 billion) in 1999 to estimated Rs 30,000 crore (Rs 300 billion) in 2004 -- making it among the fastest-growing industries in the country.
With the growth of malls, multiplexes, and hypermarkets, the consumer is being exposed to a new kind of shopping experience and services which is quietly and surely redefining her expectations from shopping. This will drive change in four areas:
Need to minimise time for shopping whenever necessary. Home delivery, express check-out counters, service and installation by appointment, valet parking -- all little services that need to be offered keeping the consumer's time importance in mind.
Consumer durables and servicing marketers have not yet got on to the discipline of operating on fixed appointed times and this is an opportunity for differentiation.
Retailers themselves need to use scientific linear programming to determine optimal number of checkout counters at different hours and plan for them.
Need for all-in-one offer. With growing time constraints and choices, the consumer is getting used to having options readily at hand when she steps out to make the final purchase decision without much dissonance. Even in a category of movie watching, multiplexes give the "freedom of choice" under one roof!
Need for an enhanced look and feel of the shopping environment. With retail ambiences getting upgraded, clearly the poky neighbourhood kirana stores are becoming part of the past for the hypermarket consumer, and she will soon find it difficult to shop "regularly" at the dusty grocery shop.
This will push the consumer's overall need for greater aesthetics in many other areas. Interestingly, in the late 80s, when Titan launched its first showrooms, it had to battle the consumer perception that "swank" means "expensive".
Today with the growth of malls and hypermarkets, that has changed and consumers no longer think "expensive looking" means "expensive". To actually establish premium imagery through shopping environment is going to be that much more difficult!
Need for customer service to encourage consumers to come back again and again and buy more. Quite contrary to the thought that technology will dehumanise transactions, the truth is humans will make all the difference.
A couple of years ago, Shoppers Stop discovered that their Customer Care associates were an area of concern. There was high turnover and they were not motivated enough.
The real story of India's retail boom January 19, 2007
on a weekday, the DLF Mega Mall -- located in the IT and ITES hub of Gurgaon on the outskirts of Delhi -- bears a deserted look. Of the few operating shops in this large mall, most have nary a customer. The same goes for several other retail outlets and many of the other malls in the vicinity.
True, a retail chain like Future Group's Big Bazaar may be clocking heady sales (growing at 100% year-on-year), but the dozen-odd shops operating in its proximity wear a deserted look, giving a somewhat hollow ring to the much-talked-about retail boom in the country.
In what seems like a quirk of circumstance, malls have sprung up all over urban India in anticipation of a consumption boom that may itself prove to be eventually truant.
Move to Mulund (West), a suburban locality of India's financial nerve, Mumbai. Rajesh Parashar, a resident of the area has the option of shopping at Big Bazaar, Apna Bazaar, Subhiksha, Spinach, Shoprite, Foodland or at the local Sai Supermarket, all of which are within a two-kilometre radius of his residence
This is paralleled by the developments happening in the Delhi suburb of Ghaziabad, where the upcoming Shipra Mall at Indirapuram already has Big Bazaar operating out of its lower-ground floor, while Reliance is slated to open shop on the third floor. Customer footfalls, however, are more in the projections of the occupiers of the mall than real.
All this retail activity, and more, and the sheer gargantuan size of the investments planned, beg the question -- does the consumer's wallet have enough money in it for everyone?
"Only time will tell," is KPMG's executive director, Deepankar Sanwalka's laconic answer. To a great extent the success or the failure of malls will hinge on the consumer population of the area. "If the spending power of consumers is high in a locality, it could sustain two-to-three large players." Not so, elsewhere, he adds poignantly.
The significance of these remarks sinks in gradually. With planned investments of $22 billion over the next five years -- excluding what might be brought in by new global and large local players henceforth -- the retail sector is expected to grow 40% to $427 billion by 2011.
Organised retail, which is 3% of the whole currently, is in turn pegged to grow to $64 billion by 2015. And one consequence of all those investments will be the fact that India's present two square-feet per capita retailing space will rise 15-20% by 2010.
Challenges of India's retail boom January 30, 2007
Andrew Levermore gestures impatiently to the bottle of mineral water on the table. It is clearly old stock - the brand recently rolled out its new look and colours in a high-decibel campaign. But it's not the vintage that is bothering the CEO of Hypercity, Mumbai's largest hypermarket.
"They changed the packaging a couple of months ago, but the bottles still don't have barcodes," Levermore shakes his head in disbelief. "A package makeover in 2006 - and no barcode."
Does it really matter? Perhaps not to the kirana or paan shops, which, admittedly, collectively sell more bottled water than the hypermarket, but a barcode is a critical business tool for organised retail, where it helps track products from the warehouse to store shelves and, finally, the checkout counter.
And when suppliers don't provide barcoded products, retailers need to print their own barcodes and then employ staff to stick them on every piece of merchandise. In a store like Hypercity, which carries 80,000-100,000 SKUs (stock-keeping units) at any given time, that means a lot of sticking.
It is also an indicator of the changes organised retail brings in its wake. For decades now, consumer goods companies have been used to delivering to India's proverbial "12 million kiranas" more or less on terms of their own choosing.
They are now finding that modern format retail doesn't operate along quite the same lines. In fact, it is so dramatically different, it is an entirely new business. "With the rise of organised retail, the balance of power shifts in favour of retailers," points out Jagdish Sheth, Charles H Kellstadt professor of marketing in the Goizueta Business School at Emory University.
What opportunities and challenges do organised retail present for consumer goods suppliers? And what strategic changes will help them do better business with giants like Wal-Mart, Reliance Fresh, Foodworld and Food Bazaar? the strategist takes a look.
The kiranas continue
What's in store
The distribution dilemma
Jo dikhta hai, woh bikta hai
RETAIL BOOM FUELLED BY IT IN INDIA AND CHINA
Smaller towns to fuel retail boom
AFTER the big metros, it is the turn of tier-II towns — with population of up to a million — to become the focus of the retail industry boom.
According to a research paper by KSA Technopak and ICICI Property Services, tier-II towns and cities will witness major retail format developments of less than 1,00,000 sq. feet by 2006. It says that the retail boom, 85 per cent of which has so far been concentrated in the metros, will percolate to smaller cities and towns and that the contribution of these tier-II cities to total organised retailing sales will grow to 25 per cent.
Prominent tier-II cities and towns that are witnessing a pick-up in activity include Surat, Lucknow, Dehradun, Vijaywada, Bhopal, Indore, Vadodara, Coimbatore, Nasik, Bhunaneshwar, Varanasi and Ludhiana.
Availability of cheaper real estate options coupled with brand acceptance among consumers in these cities is leading retailers and property developers to achieve breakeven much faster compared to larger cities. Average rental values for groundfloor space range between Rs 50-60 a sq. foot a month as opposed to Rs 100-120 a sq. foot a month in some of the prominent metropolitan cities.
Retail boom fuels player competition
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Retail boom: FDI can give the extra thrust
Market liberalisation, a growing middle-class, and increasingly assertive consumers are sowing the seeds for a retail transformation that will bring more Indian and multinational players on the scene.
The big Indian retail players looking to expand their operations include Shopper's Stop, Pantaloon, Lifestyle, Subhiksha, Food World, Vivek's, Nilgiris, Ebony, Crosswords, Globus, Barista, Qwiky's, Café Coffee Day, Wills Lifestyle, Raymond, Titan, Bata and Westside.
Well-established business houses such as Wadia, Godrej, Tata, Hero, Malhotras, etc., are drawing up plans to enter the fast-growing organised retail market in India.
Taking advantage of the retail boom, Himatsingka Seide, India's largest manufacturer of silk and silk-blended fabrics and a 100 per cent export oriented unit, has floated a subsidiary, Himatsingka Seide Wovens, to foray into the retail business with a series of fine furnishings stores, called Atmosphere, across the country.
Similarly, Welspun, a leading manufacturer of terry towels, has entered the domestic retail business with a home textile brand, Spaces, which will offer a range of bed, bath, kitchen and table linen, specifically for the Indian market. The company currently exports to 32 countries.
According to reports, Reliance Industries Ltd plans to enter the retail business in a big way and has identified 18 cities, starting with Ahmedabad, to set up malls. It will spend Rs 30-50 crore on each mall, that are to be modelled after those in Dubai and East Asia.
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