DEFINITION AND SCOPE OF RETAILING

The word of retailïng is derived from the French word �retailer�, meaning �to cut a piece off�
or � to break bulk�. In simple terms, it implies a first-hand transaction with the customer.

Retailing can be defined as the buying and selling of goods and services. It can also be defined as the
timely delivery of goods and services demanded by consumers at prices that are competitive and
affordable.

Retailing involves a direct interface with the customer and the coordination of business activities from
end to end- right from the concept or design stage of a product or offering, to its delivery and post-
delivery service to the customer. The industry has contributed to the economic growth of many
countries and is undoubtedly one of the fastest changing and dynamic industries in the world today.

TYPES OF RETAIL OPERATIONS:

Retail operations enable a store to function smoothly without any hindrances. The significant types of
retail operations consist of:

� Department store

� Specialty store
� Discount/Mass Merchandisers
� Warehouse/Wholesale clubs
� Factory outlet

Retail Management System targets small and midsize retailers seeking to automate their stores. The
package runs on personal computers to manage a range of store operations and customer marketing
tasks, including point of sale; operations; inventory control and tracking; pricing; sales and promotions;
customer management and marketing; employee management; customized reports; and information
security.

THE EMERGING SECTORS IN RETAILING:

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 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.
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:

� Hypermarts
� Large supermarkets, typically 3,500-5,000 sq. ft.
� Mini supermarkets, typically 1,000-2,000 sq. ft.
� Convenience stores, typically 750-1,000sq. ft.
� 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 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.

RETAILING SCENARIO- GLOBAL VIEW:

Retailing in more developed countries is a big business and better organized than what in
India. According to a report published by McKinsey & Co. along with the Confederation of
the Indian Industry the global retail business is a worth a staggering US$ 6.6 trillion. In the
developed world, most of it is accounted for by the organized retail sector.

The service sector accounts for a large share of GDPin most developed economies. And the
retail sector forms a very strong component of the service sector. In short, as long as people
need to buy, retail will generate employment.Globally, retailing is a customer-centric with a
emphasis on innovation in products, processes and services.

With total sales of US$ 6.6 trilloin, retailing is the world�s largest private industry, ahead
of finance and engineering. Some of the world�s largest companies are in this sector: over
50 Fortune, 500 companies and around 25 of the Asian Top 200 firms and retailers. Wal-
 Mart, the world�s second largest retailer, has a turnover of US$ 260 billion, almost one-
third of India�s GDP.

As many as 10% of the world�s billionaires are retailers. The industry accounts for over 8% of GDP in
western countries, and is one of the largest employers. According to the U.S.Department of Labor, more
than 22 million Americans are employed in the retailing industry in over 2 million retail stores.

RETAIL INDUSTRY IN INDIA:

Retail is India�s largest industry, accounting for over 10 percent of the country�s GDP and around
eight percent of employment. Retail in India is at the crossroads. It has emerged as one of the most
dynamic and fast paced industries with several players entering the market. That said, the heavy initial
investments required make break even hard to achieve and many players have not tasted success to
date. However, the future is promising; the market is growing, government policies are becoming more
favourable and emerging technologies are facilitating operations.

Retailing in India is gradually inching its way to becoming the next boom industry. The whole concept of
shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in
shopping. Modern retail has entered India as seen in sprawling shopping centres, multi-storeyed malls
and huge complexes offer shopping, entertainment and food all under one roof.

The Indian retailing sector is at an inflexion point where the growth of organised retail and growth in the
consumption by Indians is going to adopt a higher growth trajectory. The Indian population is witnessing
a significant change in its demographics. A large young working population with median age of 24 years,
nuclear families in urban areas, along with increasing working-women population and emerging
opportunities in the services sector are going to be the key growth drivers of the organised retail sector.

Big in size and turnover, Indian retailing industry is characterised by certain attributes.

The network of retailers reaches every nook and corner of the country. So any product produced
anywhere in the country can be easily accessed by the buyers from any location. Thus the spatial
convenience of Indian retailers is vary high.

Secondly, in India the retailing industry is an unorganised lot consisting of, in most of the cases, small
entrepreneurs. And the virtual omnipresence of the Indian retailer can be attributed to these small
entrepreneurs only.

The second attribute gives rise to the following characteristics �

� Power of the retailers, as such is very less, and in many cases it is negligible. This weakness has been
exploited by the manufacturers and the stronger partners of the marketing channel. The retailers, in
general, abide by the terms and conditions set by the manufacturers and other "big brothers" of the
channel.

� The manufacturers cannot directly reach all retailers in a particular geographical area. Therefore, the
manufacturers cannot maintain the desired relationship with the retailers, which in turn, makes
management of the channel complicated. This also makes the possibility of a direct feedback loop from
the retailers almost remote.

� Therefore, the member operating between the manufacturers and retailers become more powerful
as they can block the channel of communication between the two. So the dependence of retailers on
other channel members increases to a high extent. Thus the participation of retailers in the flows of
marketing mix becomes lower than desired.

� The financial strength of the Indian retailers, in general, is very low and hence the investment
capabilities. This makes the retailers more dependent on the other channel members.

� However, these characteristics are peculiar to the small retail outlets and may not be present at
every kind of retail level.

Retail Shopkeepers:

India has sometimes been called a nation of shopkeepers. This epithet has its roots in the huge number
of retail enterprises in India, which totalled over 12 million in 2003. About 78% of these are small family
businesses utilising only household labour. Even among retail enterprises that employ hired workers,
the bulk of them use less than three workers.

India's retail sector appears underdeveloped not only by the standards of industrialised countries but
also in comparison with several other emerging markets in Asia and elsewhere. There are only 14
companies that run department stores and two with hypermarkets. While the number of businesses
operating supermarkets is higher (385 in 2003), most of these had only one outlet. The number of
companies with supermarket chains was less than 10.

Retail Sales:

Retail sales, which amounted to about Rs7,400 billion in 2002, expanded at an average annual rate of
7% during 1999-2002. With the upturn in economic growth during 2003, retail sales are also expected to
expand at a higher pace of nearly 10%.

In a developing country like India, a large chunk of consumer expenditure is on basic necessities,
especially food related items. Hence, it is not surprising that food, beverages and tobacco accounted for
as much as 71% of retail sales in 2002. The remaining 29% of retail sales are non-food items. The share
of food related items fell over the review period, down from 73% in 1999. This is to be expected as, with
income growth, Indians, like consumers elsewhere, spent more on non-food items compared with food
products.

Sales through supermarkets and department stores are small compared with overall retail sales.
However, their sales grew much more rapidly (about 30% per year). As a result, their sales almost tripled
during this time. This high acceleration in sales through modern retail formats is expected to continue
during the next few years with the rapid growth in numbers of such outlets in response to consumer
demand and business potential.

Government Policy:

There has been vigorous opposition to foreign direct investment (FDI) in retailing from small traders who
fear that foreign retailing companies would take away their business, lead to the closure of many small
trading businesses and result in considerable unemployment. Given the political clout of the small
trading community, because of their enormous numbers, the government has barred FDI in retailing
since 1997. Hence, at present, foreign retailers can only enter the retailing sector through franchising
agreements.

Growth of Retailing in India:

Indian retailing industry has seen phenomenal growth in the last five years (2001-2006). Organized
retailing has finally emerged from the shadows of unorganized retailing and is contributing significantly
to the growth of Indian retail sector.

RNCOS� �India Retail Sector Analysis (2006-2007)� report helps clients to analyze the
opportunities and factors critical to the success of retail industry in India.

� Organized retail will form 10% of total retailing by the end of this decade (2010).
� From 2006 to 2010, the organized sector will grow at the CAGR of around 49.53% per annum.
� Cultural and regional differences in India are the biggest challenges in front of retailers. This factor
deters the retailers in India from adopting a single retail format.
� Hypermarket is emerging as the most favorable format for the time being in India.
� The arrival of multinationals will further push the growth of hypermarket format, as it is the best
way to compete with unorganized retailing in India.

Technology Impact:

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 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.

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.

Major retailers in India:

� India�s top retailers are largely lifestyle, clothing and apparel stores.
� This is followed by grocery stores.
� Following the past trends and business models in the west retail giants such as Pantaloon,
Shoppers� Stop and Lifestyle are likely to target metros and small cities almost doubling their current
number of stores.
� These Wal-Mart wannabes have the economy of scale to be low �medium cost retailers pocketing
narrow margin.

RETAILING SCENARIO-INDIA:

The retail scenario in India is unique. Much of its is in the unorganized sector, with over 12 million retail
outlets of various sizes and formats. Almost 96% of these retail outlets are less than 500 sq.ft. in size,
the per capita retail space in India being 2 sq.ft. Compared to the US figure of 16 sq.ft. India�s per
capita retailing space is thus the lowest in the world. With more than 9 outlets per1,000 people , India
has the largest number in the world. Most of them are independent and contribute as much as 96% to
total retail sales.

Because of the increasing number of nuclear families,working women, greater work pressure and
increased commuting time, convenience has become a priority for Indian consumers. They want
everything under one roof for easy access and multiplicity of choice. This offers an excellent opportunity
for organized retailers in the country who account for just 2% (and modern stores 0.5%) of the
estimated US $180 billion worth of goods that are retailed in India every year.
The growth and development of organized retailing in India is driven by two main factors � lower
prices and benefits the consumers can�t resist. According to experts, economies of scale drive down
the cost of the supply chain, allowing retailers to offer more benefits offered to the customer.

The retail business in India in the year 2000 was Rs.400,000 crore and is estimated to go to Rs.800,000
crore by the year 2005, an annual increase of 20%.The contribution of the organized retail industry in
the year 2000 was Rs.20,000 crore and is likely to increase to Rs.160,000 crore by 2005.

GROWTH OF RETAIL OUTLETS IN INDIA:

India is rapidly evolving into a competitive marketplace with potential target consumers in the niche and
middle class segments. The market trends indicate tremendous growth opportunities. Global majors too
are showing a keen interest in the Indian retail market. Over the years, international brands like Marks &
Spencer, Samsonite, Lacoste, McDonald�s, Swarovski, Domino�s among a host of others have come
into India through the franchise route following the relaxation of FDI (foreign direct investment )
restrictions. Large Indian companies � among them the Tata, Goenka and the Piramal groups � are
investing heavily in this industry.

Organizations ready to take on this challenge can leverage the opportunities offered by a population of
more than a billion. The prospects are very encouraging. Buying behaviour and lifestyles in India too are
changing and the concept of �Value for Money� is fast catching on in Indian retailing. This is evident
from the expansion of the pantaloons chain into a large value format, Big Bazaar, and the entry of new
discount stores in food retailing in the South, namely, Subhiksha and Margin Free.
According to a report by the Centre for Monitoring Indian Economy (CMIE), investments in organized
retailing � which include shopping malls, retail chains etc.- doubled from Rs.1,000 crore in January
2000 to Rs. 2,000 crore in January 2001.

TRENDS IN RETAILING:

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 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 and the
various security issues involved.

Recent trends include:

� Retailing in India is witnessing a huge revamping exercise.

� India is rated the fifth most attractive emerging retail market: a potential goldmine.
� Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent
or US$ 6.4 billion.
� As per a report by KPMG the annual growth of department stores is estimated at 24%.
� Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT
Kearney.
CHANGING TRENDS IN RETAILING:

By the turn of the 20th century, the face of the Indian retailing industry had changed significantly. The
retailing industry, which, until the early 1990s, was dominated by the unorganized sector, witnessed a
rapid growth in the organized sector with the entry of corporate groups such as Tata, RPG, ITC and
Bennett Coleman & Company into the retailing market.

With the liberalization and growth of the Indian economy since the early 1990s, the Indian customer
witnessed an increasing exposure to new domestic and foreign products through different media, such
as television and the Internet. Apart from this, social changes also had a positive impact, leading to the
rapid growth in the retailing industry. Increased availability of retail space, rapid urbanization, and
qualified manpower also boosted the growth of the organized retailing sector.

Food retailing was a key area that saw some action at the national level, with players like Foodworld and
Subhiksha, establishing stores all over India. While supermarket and departmental chains replaced
traditional grocery and general store formats, introduction of fast foods (McDonalds), packaged foods
(MTR, Namma MTR), vending machines and specialty beverage parlors (Nescafe, Tata Tea, Caf� Coffee
and Barista) brought about significant changes in the eating habits of Indian consumers.

However, it was the non-food sector that saw tremendous action, with the introduction of new product
segments. These segments mainly comprised lifestyle/apparel/ fashion/accessories (eg. Shoppers Stop,
Westside, Lifestyle, Pantaloons, Reebok), books/music (Landmark and Crosswords), drugs and pharmacy
and beauty (Health & Glow, CavinKare and Shahnaz Husain). The emergence of new segments also
resulted in new store formats, including hypermarts, large supermarkets (3,500-5,000 sq.ft), mini
supermarkets (1,000-2,000 sq.ft), convenience stores (750-1000 sq.ft) and discount/shopping/grocer.

According to reports, organized retailing, which accounted for about 6% of the total retail industry in
1999, was expected to increase to about 20% by 2005. In October 2003, the total organized retail
market in India was valued at about Rs. 200 bn and was estimated to grow eightfold in the next decade.

SUGGESTIONS:

To make Indian retailing world class many a challenges are to be overcome by the industry.
Some suggestions to improve the situation are offered below.

Establishment of Retailer co-operatives, which will maintain warehouses etc. to work as a

distribution centre for the member retailers can help Indian retailer attain a respectable
position in the relationship matrix mentioned above. The whole organisation will run at a no-
profit, no-loss basis. This would enable the retailers to buy the products they want directly
from the original manufacturers in huge quantity This would make the application of the
concepts of QR (Quick Response) and ECR (Efficient Consumer Response ) possible to a
certain extent.. However, many inherent difficulties may make the functioning or even
establishment of such a co-operative difficult. Nevertheless, these problems are inevitable and
must be dealt with firmly.

Merger and buy-out of weak retailers by a stronger one, specially in metros and big cities may
be another step towards this direction. This would give the new retailer the desired leverage to
be world class.

Use of technology to the greatest extent possible may also help strengthening the retailer�s
position in the marketing channel. First step may be taken with setting up of a network of
independent firms believing in use of technology for business excellence. Then a collection of
strong retail organisations may pressurise the suppliers and other channel members to use
compatible technology. This may open the door for implementation of QR or ECR or other
relevant concepts for the retailers.

An overall change is to bring about in the mindset of the retailers. They will have to think
differently. They must find out and satisfy service outputs of the target customers Unless
there is a drastic change in the mindset of at least large and medium retailers and as well as
that of the manufacturers, the required change is not going to come by easily. The retailers
must learn and understand to lead the chain from the front.

Setting up of more and more non-store retailing centers would also ensure a strong retailing
organisation. Non-store retailing makes implementation of modern principles easier and less
costlier.

Setting up of franchisee organisation may also help in strengthening the position of the
retailers. The franchiser can exert a tremendous control over the way retailing is done.
Transnational service organisation like McDonald and KFC are being able to offer a
centralised control over purchase and operation. Large and medium sized retailers may take
up the concept of franchising to reach the market in a more meaningful way. Though the
management of franchisee network is difficult than managing a retail chain in view of high
level of investment and other obligations, Indian retailers should spread out its wings its in
this profitable and efficient way.

CONCLUSION:

Indian retailing, thus enjoys many unique features, is still done in a primitive way. Barring a
few exceptions, Indian retailers, particularly FMCG retailers, are not in a position to
implement world-class practices of supply chain management. The concepts of Quick
Response or Efficient Consumer Response are unheard of in Indian retailing. The two bases
of modern retailing management, the Electronic Data Interface and a mutually respectable
partnership among retailers and suppliers (the manufacturers) are missing to a great extent in
Indian context. Also, Indian marketing channel members are performing some unnecessary
tasks, which makes the channel structure heavy and inefficient. Though these inefficiencies
are observed in all retailing irrespective of industry, the symptoms are more evident in Indian
FMCG retailing. Inefficiency in retailing leads to lower profitability of the retailers and lower
service outputs for the consumers.

Ways and means to strengthen the position of the retailing industry, doing away with the
causes for the inefficiencies, therefore, are to be taken up in an urgent manner. Such measures
may include establishment of retailers co-operatives, merger and buy-out, use of technology
to the greatest possible extent, setting up of nonstore retailing centers and increase in
franchisee network.

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