MARKETING AND RETAIL BUSINESS

THE CHANGING SCENARIO OF RETAIL BUSINESS

IN INDIA

Objective of the Study

The basic objective is to study;
 The Changing Scenario of Retail industry in India
 Impact of Changing trends in Retail Industry on markets

FACTORS IMPACTING THE CHANGING SEGMENT IN INDIA

• Increasing affluence
• Changing lifestyle
• Positive attitude towards spending by young Indians
• Retail market is expected to grow from about $550 billion in 2015 to $2.1 trillion by
2025
• This is almost fourfold growth over a decade
The Indian retail business is expected to grow by 4 times in one decade i.e. in 10 years it will
increase by 4 times. The volume of existing business and consumption is increasing. The
consumption is increasing because people are changing their life and standards of living. The
more people are added to the work areas i.e. Young Indians are growing up. The women are
added to work segments, so this has given a higher propensity to purchase at higher power.

OPPORTUNITIES AND INVESTORS

• Opportunity for large scale retailers to set-up their operations have increased.
• Organized retail formats like departmental stores, hypermarkets, supermarkets and
specialty stores are coming up.
• Traditional investors are changing to alter the retailing landscape in India.
The consumption is increasing and as profile of population is changing. People want that this
segment needs more variation in terms of being organised and updated. So big investors and
retail chains are ready to come in India and set up huge operations. Many brands have entered
lifestyles of people because this has altered the way business being done. So more investors,
who were running traditional shops also have altered their ambience and way of operations as
compared to big organisations. They are learning, looking and changing ambience and
operational ability. Most of shopkeepers have machines. They are doing their bills online,
giving solutions through internet: WhatsApp.They have made groups, even traditional sellers
are changing and connecting to customers in a different way.

RETAIL IN 2025
• Currently, service sector’s contribution to the Indian GDP is 59%
• Out of this 14-15% is held by retail sector.
• Predictions revealed that by 2025, India will become the world’s 5th largest consumer
market.

1
The potential of Indian economy in next five to six years is going to grow, and it will become
5th largest consumer economy because of its population base and growing potential of people
to alter their changing lifestyle to assist better facilities and products.

CHALLENGES OF ORGANISED RETAIL IN INDIA

• Heterogeneous market
• Infrastructure will bring about logistical challenges
• Trained employees with understanding of retail business are inadequate compared to
the needs of organized retail sector.
• There are Barriers to entry.
• High cost of real estate
• Indian retailers are deeply entrenched, are expanding and building on logistics and
technology initiatives

The challenges of organised retail

The cost of property is going up and real estate is becoming costly. Infect, in most of metro
cities and markets, cost of property is highest in world. It basically poses a barrier for big
investors to come in India. It also poses a barrier because to manage supply chain and logistic
problems are there. The cold storage plants and warehouses are not very modernised and
developed in India.

PROBLEMS FACED BY RETAILERS

• Little or no collaboration between vendor & retailer
• Low fill rates from vendors
• Highly localized assortment leading to relationship with multiple vendors
• Complex trading contracts and off invoice discounts
It is a big problem in India because markets are segmented. We don’t have a vendor and
retailer relationship. If there is no partnership between supplier and retailer. It is difficult for
vendors to exist because there are no retailers, who can take or fill up stores. Here production
cost goes high for them. And for retailers, they take little stock because they are afraid of
selling or managing stock becomes difficult. The storage capacity and displaying capacity is
less with Indian stores. The localized assortments, which are available in nearby markets are
taken by retailers. The markets still are in nascent stage and facing lot of problems, which
need investment and concern from government or big investors who can come in India and
organize to build a supply chain where customers can get variety and products.

SUPPLY CHAIN & TRANSPORTATION

• Supply chain is not reliable.
• Cold storage infrastructure is still evolving
• Outsourcing of transportation is costly.
• Low level of automation in warehouses.
The supply chain is not developed because vendor partnership is not created, warehouses
automation is not there i.e. Automatic entry or billing, tracking and managing of stock,
operational software are not available with most of warehouses. You just get space to dump

2
products. Now to search products and get products, as per order is a difficult task. It is mostly
manual, so unless and until we don’t have laser billings or bar coding is done for even the
warehousing and same software which are used in retailing. If they are not used, in
warehouses, tracking of material becomes difficult. So we need to sense that even if we are
creating space, we need good IT capabilities so as to design software to store and track
materials.

INVESTMENT AND OPTIMIZATION

• Multiplicity of disparate systems & data formats
• No architecture for roadmaps
• Base ERP and home grown POS solutions. Low investments in store systems
• No investments in planning & optimization technologies

Investment and optimisation are not proper

If investment is coming in one segment and other segment is not developed then this kind of
disparity between segments poses a problem. Like, if IT solutions are available,
transportation is not developed and if transportation is available, IT is not developed. So
mismatching of skills, capabilities and core competencies which are not designed fully for
system, it cannot make a system work. The supply chain management requires investment,
i.e. good banking facilities availability, good spaces and locations availability, cost
management, software management, and transportation management with retail ambience
and design. These are micro factors which can also make the chain successful.

CHALLENGES AHEAD
• Weakness of player
• The lack of recognition as an industry hampers, the availability of finance to the
existing and new players.
• The high cost of real estate:
• Real estate prices in some cities in India are amongst the highest in the world
• The lease or rent of the property is one of the major areas of concern

Challenges
The challenges which are posing lot of problem to retail segment are that the cost of
managing operations is high. The banking institutions are not fully supporting the retail
segment because here the loan facility or availability of working capital management is
difficult as this not a subsidized sector. So, availability of finance is a problem for investors.
The high cost of property and high cost of registry rate i.e. Taxes paid to government are
very high.

TAXATION AND FDI

• Multiple and complex taxation system
• The sales tax rates vary from state to state while organized players have to face a
multiple point control and tax system, there is considerable expense to transfer good
from one store to another.

3
 • Foreign direct investment:-
• The fact that foreign direct investment (FDI) is not permitted in pure retailing is seen
as one of the prime reasons for the slow growth of retail in India
This data is little old, I have taken because students need to understand that still the retail
sector was not developed because of multiple tax structure in different states of India. Now
government is trying to overcome this structure through GST i.e. One tax system which is
applicable to all over India. We have state GST and central GST i.e. CGST and SGST. This
is goods and service tax which is applicable to retail sector but this is at very nascent stage.
This is also very high. So this is posing problem to retailers where they have to pay a huge
amount of taxation to government which is enhancing operational cost. If people pay more
taxes, how they can manage operations, as margins are very low. The foreign direct
investment is permitted in retail sector i.e. Multi brand retail strategy that has crossed most
of the legal barriers which existed with most of existing and changing government. Most of
the discussions have been done, but still the regulations and paper work is so high that it
poses a problem for investors who to come directly to India. Especially because with retail
sector comes with physical format, its e online existence is also important. Still we do not
have a pure rules and regulations impacting online industry. The taxation systems are not
designed because whenever solutions through legal experts and chartered accountants come,
they only look into physical disposal of goods and services. So legal systems related to online
systems are still not clear, which has taken up many companies like Flipchart and others to
take Singapore as base. So when Wall-Mart has taken up, though company is managed by
Indians but head- office is in Singapore. They took offices abroad, because of the
complicated structure and anti growing structures of taxes, which are implied to online sector.
So, this poses a big problem. The government needs to systemise legalities.

LACK OF ADEQUATE INFRASTRUCTURE

• Lack of adequate infrastructure
• Poor roads, lack of a cold chain infrastructure, hamper the development of food and
fresh grocery retail in India.
• The existing supermarkets and food retailers have to invest a substantial amount of
money and time in building

If you invest in cold storage, the initial fixed cost is very high because again cold storage is a
property where you need to convert this investment in real estate which is very high. So most
of the investors, don’t have this much amount of funds. So they can rent out space. The rental
space will only be available, if there are no big investors, who can build big houses and give
rental space to other small investors.

SHOPPING MALLS AND BRANDS

• The shopping mall formats are fast evolving in Indian markets.
• Partnering among brands, retailers, franchisees, investors and malls is an emerging
scenario in Indian retail business.
• Improved infrastructure

4
As technology is changing and as government is also moving systems and regulations to
better formats, so we are seeing growth of organised retail, where big malls and departmental
stores are coming up. They are giving better facilities and products but still the impact of
these malls and facilities is not in all parts of the world.

SUPPLY CHAIN INVESTMENTS

• Setting up logistics and supply chain infrastructure
• Import of knowhow and logistics techniques from developed retail countries
Logistics - store materials which are sourced from stockiest through cost effective transport
systems. This is a channel, which needs investment. So, trained people i.e. Cost accountants
and people who understand retail as business are needed. We need technicians and trained
people who can understand cost and reduce and give us expertise. We need to borrow people,
who understand markets and mechanisms to foster solutions.

IT AN ENABLER
• IT is the enabler behind communication, collaboration with suppliers and an efficient
supply chain
• Utilize experience of international retailers to train local talent
• Availability of large rural market

We have an untouched and untapped rural market, where potential buyers are there but there
are no facilities and goods. So standard of living of people is low. We can tap this standard
and sell more goods and services to this segment because rural consumers are also earning
money i.e. they have lot of agricultural products but since cold storage facilities are not
available, they are selling goods at a very cheap rate because within two days their supplies
will get deteriorated or obsolete. If there were warehouses, then they could store their goods
and sell goods at a price which is reasonable for them, can help them to sustain in market.
The agricultural earnings which most of investors are facing problem are that they cannot
store their vegetables for a long time. So this is at least being drained out market and is going
to the big investors.
If we can manage rural sectors, so people can also earn. They form a market potential for
big organised retailers to invest in India because they have resources of land to work for
production but they don’t have markets, managements and logistics to manage prices. So, if
this potential can be developed, this population can become a good segment to buy and
enhance their living standards.

INDIA IN 2042
• Pool of huge markets and availability of raw materials at comparatively cheaper costs
are expected to make India lead one of the world’s best retail economies by 2042.
We have a pool of talented people, trained people, huge population, availability of cheap
labor and other facilities because the turnovers are high. The destinations are larger and
consumption levels are high. So we can manage turnover and cost can be made simple. This
can emerge as very big market in 2042 if, developed properly. If the property and banking

5
institutions can be manage finances, this potential can be tapped in India. It can be made one
of attractive destinations for retail investments.

ORGANISED RETAIL IN INDIA

• Organised retail in India accounts for 8% of an approximately 600 billion USD dollar
market.
• Compared to the size of other South East Asian markets, this figure indicates the
tremendous scope for growth for organised retail in India, both in terms of penetration
as well as predicted CAGR till 2020.

So, it is only 8% of total potential which is with organised retail segment i.e. 92% of retail
market is still unorganised. Here goods and services are sold through kirana stores, shops,
temporary markets, and traditional city markets which pose lot of problems in terms of
handling and managing goods. The customers are also not getting total variety and
availability of products and services.

RETAIL AND EMPLOYMENT

• The industry is also slated to be a major employment generator in future.
• There is a huge untapped opportunity in the retail sector
• Having immense scope for new entrants, driving large investments into the country.
• Talent availability

The retail employment is a major issue, where government can put concern and investments
could come here. When investments in this segment come, we require professionals, semi
skilled, and unskilled people. So there a large pool of semi skilled and unskilled people in
India, who can connect with industry and make the industry grow in a better way and size for
operations to tap potential.

INDIA AND RETAIL CONSUMPTION

• India is one of the fastest growing economies in the world.
• Second largest populated country
• Accounts for 17% of the world’s population and 3% of global consumption.
• Highest consumption growth amongst the top 10 countries ranked by size of
household final consumption expenditure (HFCE).

The consumption in India is high because population is high. There are hundred and ten crore
people, who are ready to shop and consumer goods and services related to food and basic
needs of life. So this huge population gives a potential for big investors to make this market
more organised. So this is 17% of population which is available over here and it is one of the
biggest global consumers for food and other items.

GROWTH OF URBAN CUSTOMERS

• Growth in young urban consumers and nuclear families:
• Forty-seven percent of the population is under the age of 25 years

6
 • India is slated to be the youngest country by 2020

47% of population is under the age of 25 years that means it is young people, ready to shop,
be fashionable, be modernised. And here needs are high because younger population is going
to get married; they are going to increase the propensity to consume because younger people
have greater connection to job market and profiles. Most of countries all over the world have
senior citizens. So there are countries where the young population and young talent are
lacking. They have many people who are at senior stage of life, where there is less
entertainment required and more medicines required. So younger population poses a segment
which is more fun and more conscious opportunistic resources needed for this segment to
grow in a better way.

NUCLEAR FAMILIES GROWING IN INDIA

• Rising urbanisation
• Growing participation of women in the workforce
• Time-starved group pays a premium for convenience, as there’s growing participation
of women in the work force.
• 70% of the households now have a nuclear structure
• Nuclear families spend 20–30% higher than joint families
Because of the rising city structures or urban population, job search and facility search,
there’s migration from rural to urban sectors, where they are leaving their parents and coming
to city sectors. Here nuclear families have started growing up, where women are also
participating in work life and as she participates in the work life; she needs convenience to
manage her house. So, the goods are purchased for convenience like ready to make food, is
being demanded more by nuclear families. These nuclear families spend 30% more than joint
families because most of the work in joint families is being shared. But here, you cannot do
your work, so you take support of many solutions like washing machines, moping
instruments, aqua guards, filters. Food industry is in turn is giving lot of solutions, of ready to
make foods. There are lot of ready sauces, which are part of consumption of Indian families.
These goods were never used by Indian families, as we had lot of time to create and manage
things with our own hands.

IMPROVING REGULATORY FRAMEWORK

• Improving regulatory environment:
• Easing FDI rules
• Investment in
• Warehouses
• Logistics
• Customer services
• Creating ancillary jobs across the country upgrading the retail skills of Indian
workforce.

We need that youngsters and young population should connect to retail segment. If these
people are connected to retail segment they will learn the talent and understand customers.

7
They will diversify and design and create an ambience to collect merchandise which is
generally wanted by customers.

FACTORS IMPACTING RETAIL BUSINESS IN INDIA

Lets study the problems, its,
• Improper location
• High rentals
• Improper store layout for operations
• Insufficient parking
• Pro-tenant rent laws
• Zoning restrictions
• Lack of clear ownership titles
• High stamp and other governmental duties.
The retail business is difficult because the shops are costly and even titles are not clear
because sometimes the property is on lease and it is taken from government. So the titles
need to be clear and if fourth and fifth generation needs to have clear titles. The cost of
clearing titles is very high in India. The registry rates and stamp duties paid to government
poses a barrier not to get into ownership aspects. This increases litigations. The laws which
are related to this aspect can build codes of ownership arising in the market. So we need to be
clear, if government reduces stamp duties, titles will be clear. There will be more interest of
people to take ownership titles for doing their own business in an efficient way. Even if, they
are giving properties on rental, pro-tenant laws are hampering the growth. Most of people
fear, that they will lose property rights and tenants will take property. So most of the shops
are closed and most of the labour is not being utilized as owners are not ready to come into
agreements because litigation cost is very high.

TALENT IN RETAIL SECTOR

• Retaining the talent has become an increasing challenge.
• Talent retention on the front end is difficult where the attrition rate is about 25–40%.
• HR and workforce practices are at a nascent stage of development
• Talent acquisition is another key challenge

The talent retention- how many people are joining and leaving i.e. because kind of work that
you are doing is monotonous and very difficult as you have to handle the stock. So people
have to carry stock from one part of the store to another which requires physical and manual
investment of energy which is not a part of any person’s stamina. We need automatic lift
systems and machines to handle the stock which is not available in India. So people, when
enter retail stores and try to physically do the work. They get sick and tired. And obviously a
population that is at very senior or higher stage are not able to connect to retail sector because
of physical labour required. We need to design automation and understand to retain talent.
We have to have comfortable work life and skills to connect with the retail segment for
customer satisfaction and increasing turnover.
SUMMARY

8
Retail industry is a growth oriented industry where innovations and creativity can build better
connections with the customers. The youth is growing with changing trends to buy modernize
and updated products and services. A huge potential of young population is available which
is inviting many investors from Indian scenario and also from global scenario. The investors
can invest and design a supply chain which will enhance and modernize the market.
Thank you students.