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Research On Retail Industry
Research On Retail Industry
What is Retail?
The word 'Retail' has been derived from the French word 'retailer' which means 'to cut
a piece off' or 'to break bulk'. Retailing can be defined as procurement of varied products in
large quantities from various sources/manufacturers and their sale in small lots, for direct
consumption to the purchaser. Retailing is one of the biggest sectors in India and has witnessed.
particularly in the rural and semi-urban areas. Kirana stores are also popular in big cities and
metros. The unorganized sector includes thousands of small retail shops (kirana shops and
general stores) spread over the entire geographical area of the country. In every village, one
or more retail shops also called conventional or convenience stores exist to meet the daily needs
of local people. Unorganized retailing has a long history in India. Unorganized retailing activity
is an integral India. The popularity of unorganized retailing is due to special benefits offered
by small unorganized retailers. The growth of unorganized retailing is nearly 10 % per
annum
The organized retailing is comparatively recent development in India. The malls, chain
shops, large department stores etc. are the examples of organized retailing. It refers to
corporate based retail chains and hypermarkets and privately-owned large retail shops.
Organized retailing is becoming popular in urban areas and metros. The mall culture is
spreading with fast speed. The share of organized retailing in total retail business may be 6
to 10% percent or even more. This suggests that organized retail has tremendous growth
potential in the fast-expanding Indian economy.
Retail trade is conducted with the use of different formats. Format is the structure or style of
functioning, which creates a unique identity for retailers. There is retail revolution taking place
with more formats coming in the picture.
categories.
Mom-and-pop stores: they are family owned business catering to small sections; they are
Departmental stores: are general retail merchandisers offering quality products and services.
Convenience stores: are located in residential areas with slightly higher prices goods due to the
convenience offered.
Shopping malls: the biggest form of retail in India, malls offer customers a mix of all types of
products and services including entertainment and food under a single roof.
E-trailers: are retailers providing online buying and selling of products and services.
Discount stores: these are factory outlets that give discount on the MRP.
Vending: it is a relatively new entry, in the retail sector. Here beverages, snacks and other
small items can be bought via vending machine.
Category killers: small specialty stores that offer a variety of categories. They are known as
category killers as they focus on specific categories, such as electronics and sporting goods.
This is also known as Multi Brand Outlets or MBO's.
Specialty stores: are retail chains dealing in specific categories and provide deep assortment.
As of 2003, India's retailing industry was essentially owner manned small shops. In 2010,
larger format convenience stores and supermarkets accounted for about 4 percent of the
industry, and these were present only in large urban centres. India's retail and logistics industry
employs about 40 million Indians (3.3% of Indian population).
Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand
retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or
any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic
process.
In January 2012, India approved reforms for single-brand stores welcoming anyone in the
world to innovate in Indian retail market with 100% ownership, but imposed the requirement
that the single brand retailer source 30 percent of its goods from India. Indian government
continues the hold on retail reforms for multi-brand stores.
In June 2012, IKEA announced it had applied for permission to invest $1.9 billion in India and
set up 25 retail stores. An analyst from Fitch Group stated that the 30 percent requirement was
likely to significantly delay if not prevent most single brand majors from Europe, USA and
Japan from opening stores and creating associated jobs in India.
On 14 September 2012, the government of India announced the opening of FDI in multi-brand
retail, subject to approvals by individual states. This decision was welcomed by economists
and the markets, but caused protests and an upheaval in India's central government's political
coalition structure. On 20 September 2012, the Government of India formally notified the FDI
reforms for single and multi-brand retail, thereby making it effective under Indian law.
Food and beverage retail backed by huge potential and changing lifestyle, the food and
beverage retail market is growing at a robust 30-35 per cent year.
E-commerce or E-tailing the next big revolution with the advent of e-commerce in retail
industry, retail stores are facing stiff completion from e-stores. The rising demand for e-
shopping has led to new debate cropping up in the world.
GROWTH OF RETAIL INDUSTRY IN INDIA
An increasing number of people in India are turning to the services sector for employment due
to the relative low compensation offered by the traditional agriculture and manufacturing
sectors. The organized retail market is growing at 3.5 percent annually while growth of
unorganized retail sector is pegged at 6 percent. The Retail Business in India is currently at
the point of inflection. Rapid change with investments to the tune of US $ 25 billion is being
planned by several Indian and multinational companies in the next 5 years. It is a huge industry
in terms of size and according to management consulting firm Techno park Advisors Pvt. Ltd.,
it is valued at about US $ 350 billion. Organized retail is expected to garner about 16-18 percent
of the total retail market (US $ 65-75 billion) in the next 5 years.
According to the tenth report of GRDI of AT Kearney, India is having a very favourable
retail environment and it is placed at 4th spot in the GRDI. The main reasons behind that
is the 9% real GDP growth in 2010, forecasted yearly growth of 8.7% through 2016, high
saving and investment rate and increased consumer spending. According to report, organized
retail accounts for 7% of India’s roughly $435 billion retail market and is expected to reach
20% by 2020. Food accounts for 70% of Indian retail, but it remains under penetrated by
organized retail. Organized retail has a 31% share in clothing and apparel and continues to see
growth in this sector. A report by Boston Consulting Group has revealed that the country’s
organized retail is estimated at US $ 28 billion with around 7% penetration. It is projected to
become a US $ 260 billion business over the next decade with around 21% penetration. The
analysts believe that the sector is likely to show significant growth of over 9% over the next
ten years and also see rapid development in organized retail format with proportion likely to
reach more respectable 25% by 2018.
EVOLUTION OF RETAIL IN INDIA
Emerging formats
Exclusive retail
outlets
Hypermarkets
Established formats Internal retail
Kirana shops Malls/Specialty
Traditional formats
Convenience stores Malls
Salesman Multiplexes
Faire price shop
Haats Rural oriented
Co-operative stores
Mandis formats
Pan/beedi shops Fast food outlets
Service galleries etc
International Standards: Even though India has well over 5 million retail outlets of
different sizes and styles, it still has a long way to go before it can truly have a retail industry
at par with International standards. This is where Indian companies and International brands
have a huge role to play.
Inefficient supply chain management: Indian retailing is still dominated by the unorganized
sector and there is still a lack of efficient supply chain management. India must concentrate
on improving the supply chain management, which in turn would bring down inventory cost,
which can then be passed on to the consumer in the form of low pricing. Lack of Retail
space: Most of the retail outlets in India have outlets that are less than 500 square feet in area.
This is very small by International Standards.
Cultural Diversity: India's huge size and socio economic and cultural diversity means there
is no established model or consumption pattern throughout the country. Manufacturers and
retailers will have to devise strategies for different sectors and segments which by itself
would be challenging.
Real estate issues: The enormous growth of the retail industry has created a huge demand for
real estate. Property developers are creating retail real estate at an aggressive pace. With over
1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need
additional retail space of 700,000,000 sq ft (65,000,000 m2) as compared to today.
Human resource problems: Trained manpower shortage is a challenge facing the organized
retail sector in India. The Indian retailers have difficulty in finding trained person and also
have to pay more in order to retain them. This again brings down the Indian retailer’s profit
levels.
Frauds in Retail: It is one of the primary challenges the companies would have to face. Frauds,
including vendor frauds, thefts, shoplifting and inaccuracy in supervision and administration
are the challenges that are difficult to handle. This is so even after the use of security
techniques, such as CCTVs and POS systems. As the size of the sector would increase, this
would increase the number of thefts, frauds and discrepancies in the system.
Key Indian Players in the Indian Retail Market are as follows :
Political:
Political factors like government policies and regulation of the retail industry affect its revenue
and profitability. The political environment affects so many things including economic
environment of a nation and international supply chains of businesses. Political stability means
better business because political disruption leads to the disruption of supply chain and sales.
Moreover, political issues can also become hindrance to smooth business operation. The
antitrust issues have continued to trouble Amazon and the issue seems to have reignited with
Trump as president. In all the nations, the business environment is affected by the political
landscape. The Asian economy is growing at a faster rate than other parts of the globe.
However, the government and Red tape can be a big problem in the Asian nations. For the big
International retailers, it can be quite difficult to expand into the Asian countries. India still has
difficult laws and restrictions on Foreign Direct Investments. All these factors can make it
difficult for the retail brands to operate profitably in the international environment.
Economic:
Economic factors are always very important in the context of trade and business. The state of
the world economy decides the state of sale and profits for the industry. The world economy
has rebounded and is growing. Economic growth means that people are going to spend more
on shopping. However, even in the time of recession, the retail industry had maintained
impressive sales. In 2015, it achieved global sales of $20.8 trillion. Based on the economic
scenario worldwide, the retail industry is predicted to have grown to $28 trillion by 2020. The
labor market and the economy both are in very good shape and an increase in disposable income
has also boosted consumer confidence. All of these are very good signs for the retail industry.
The better the shape of the economy, the higher will be the revenue and profits for the retail
brands. Better economic scenario means a growth in sales and overall better shape of the retail
sector.
Social:
Social trends are also a major impact on the retail sector and its profitability. Demographic
changes and changing consumer preferences are going to have a deep impact on retail sector.
The millennials have different preferences than the previous generation. When it comes to
customer service, they want more personalized service. Retailers will have to change the way
they serve their customers and design their service experience better to lure in millenials in
higher numbers. Demographic changes have also affected the popularity of products. the
technological products are in more demand than ever. The demands of the new generation are
much different than the older generations. The importance of customer service is growing and
a lot of retailers’ popularity will depend on how well they have crafted their customer
experience. More focus shall have to be on customer engagement.
Technological:
Technological factors are now all the more important whether in terms of supply chain,
customer service or sales. The growth of digital technology has also increased the number of
players in the retail industry. Technology affects several things including user experience. If e-
retail has enjoyed exponential growth then it is because of the additional convenience provided
by technology. More and more retailers are trying to make better use of technology to make
the customer experience better. A number of new technologies like AI and cognitive
intelligence are going to change the retail landscape in the coming years. Even cloud
computing, IoT and Distributed intelligence are going to have a deep impact on the retail sector.
In the coming years several more things will be determined by technology which will remain
at the centre.
Environmental:
Like the other industry sectors, the retail sector is also affected by the sustainability concerns.
Packaging, waste reduction, renewable energy and several other concerns related to
sustainability are there before the retail sector. The big brands like Amazon and Walmart have
already invested a lot in reducing their carbon footprint and in renewable energy. Apart from
that the focus is also on packaging and sourcing in an environmentally responsible manner.
Amazon is always driving improvement in packaging sustainability across the entire supply
chain. It is focusing not just on reducing its carbon footprint but also on achieving 100%
renewable energy usage in the long term.
Legal:
The legal factors are also just as important for the retail sector. There are so many laws related
to business and employment that affect it. Labour laws are particularly a big pain for the
retailers who have to maintain low prices to remain competitive. Walmart has had so many
tussles with laws over labour related issues. Apart from that, the other laws like product and
packaging related laws also apply to the retail sector. Overall, the legal scenario is quite
complex and retailers have to be cautious since any violation can result in big fines. Both
Amazon and Walmart have had to deal with their fair share of legal issues in the past. These
laws and the level of legal scrutiny differs from nation to nation and everywhere the retailers
have to be cautious about compliance.
Drivers of performance in Retail:
Functioning of a retail Enterprise:
Achieving Retail Excellence through 5 dimensions “ABCDE”:
CEO speak: what would shape the retail industry in the next decade: