emerging opportunity in retail ajay gupta

8/8/2019 Emerging Opportunity in Retail Ajay Gupta

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Emerging Opportunity in Retail Sector

1.0 THE INDIAN RETAIL SECTOR

India is the country having the most unorganized retail market.Traditionally it was a family's livelihood, with their shop in the front andhouse at the back, while they run the retail business. More than 99%retailer's function in less than 500 square feet of shopping space.

Global retail consultants KSA Technopak have estimated that Indianretail sector is estimated at around Rs 900,000 crore, of which theorganized sector accounts for a mere 2 per cent indicating a hugepotential market opportunity that is lying in the waiting for theconsumer-savvy organized retailer. Purchasing power of Indian urbanconsumer is growing and branded merchandise in categories likeApparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widelyaccepted by the urban Indian consumer. Indian retailers need toadvantage of this growth and aiming to grow, diversify and introducenew formats have to pay more attention to the brand building process.The emphasis here is on retail as a brand rather than retailers sellingbrands. The focus should be on branding the retail business itself.

There is no doubt that the Indian retail scene is booming. A number oflarge corporate houses Reliance, Tata's, Raheja's, Piramals's,Goenka's have already made their foray into this arena, with beautyand health stores, supermarkets, self-service music stores, new agebook stores, every-day-low-price stores, computers and peripheralsstores, office equipment stores and home/building construction stores.Today the organized players have attacked every retail category.

The Indian retail scene has witnessed too many players in too short atime, crowding several categories without looking at their corecompetencies or having a well thought out branding strategy.

The growth rate of super market sales has been significant in recentyears because greater numbers of higher income Indians prefer toshop at super markets due to higher standards of hygiene andattractive ambience. With growth in income levels, Indians havestarted spending more on health and beauty products. Here also small,single-outlet retailers dominate the market. In recent years, a fewretail chains specialised products have come into the market.


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Although these retail chains account for only a small share of the totalmarket, their business is expected to grow significantly in the futuredue to the growing quality consciousness of buyers for these products.Numerous clothing and footwear shops in shopping centres andmarkets operate all over India. Traditional outlets stock a limited range

of cheap and popular items; in contrast, modern clothing and footwearstores have modern products and attractive displays to lure customers.With rapid urbanization, and changing patterns of consumer tastes andpreferences, it is unlikely that the traditional outlets will survive thetest of time. Despite the large size of this market, very few large andmodern retailers have established specialized stores for products.

There seems to be a considerable potential for the entry or expansionof specialized retail chains in the country. The Indian durable goodssector has seen the entry of a large number of foreign companiesduring the post liberalization period. A greater variety of consumer

electronic items and household appliances became available to theIndian customer. Intense competition among companies to sell theirbrands provided a strong impetus to the growth for retailers doingbusiness in this sector. Increasing household incomes due to bettereconomic opportunities have encouraged consumer expenditure onleisure and personal goods in the country.

There are specialized retailers for each category of products (books,music products, etc.) in this sector. Another prominent feature of thissector is popularity of franchising agreements between establishedmanufacturers and retailers. A strong impetus to the growth of retail

industry is witnessed by economic boom and driver of key trends inurban as well as rural India.

The Indian retail industry in valued at about $300 billion and isexpected to grow to $427 billion in 2010 and $637 billion in 2015. Onlythree percent of Indian retail is organised. Retailers of multiple brandscan operate through a franchise or a cash-and-carry wholesale model.

Retail is Indias largest industry, accounting for over 10 percent of thecountrys GDP and around eight percent of employment. Retail in Indiais at the crossroads. It has emerged as one of the most dynamic and

fast paced industries with several players entering the market. Thatsaid, the heavy initial investments required make break even hard toachieve and many players have not tasted success to date. However,the future is promising; the market is growing, government policies arebecoming more favourable and emerging technologies are facilitatingoperations.


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Indian consumer is also witnessing some changes in its demographicswith a large working population being under the age group of 24-35,there has been an increasing number of nuclear families, increase inworking women population and emerging opportunities in the servicesector during the past few years which has been the key growth driver

of the organized retail sector in India. The emergence of a largermiddle and upper middle classes and the substantial increase in theirdisposable income has changed the nature of shopping in India fromneed based to lifestyle dictated.

The self-employed segment has replaced the employed salariedsegment as the mainstream market, thus resulting in an increasingconsumption of productivity goods, especially mobile phones and 2 - 4wheeler vehicles. There is also an easier acceptance of luxury and anincreased willingness to experiment with the mainstream fashion,reuslting in an increased willingness towards disposability and casting

out from apparels to cars to mobile phones to consumer durables.Indians spend over USD 30,000 a year (in PPP terms) on conspicuousconsumption that represents 2.8% of the entire population (which isapprox 30 million people) making it the 4th largest economy in PPPterms next only to USA, Japan and China.

With reference to the map of India's income class, it can be noticedthat the real driver of the Indian retail sector is the bottom 80% of thefirst layer and the upper half of the second layer of the income map.This segment of about 40 million households earns USD 4,000-10,000per household and comprises salaried employees and self-employed

professionals and is expected to grow to 65 million households by2010. In addition to this, facilities like credit friendliness, availability ofcheap finance and a drop in interest rates have changed consumermarkets. Capital expenditure (jewelry, homes, and cars) has shifted tobecoming redefined as consumer revenue expenditure, in addition toconsumer durables and loan credit purchases.

How has the Indian consumer changed over the years?

In the past few years the whole concept of shopping has been alteredin terms of format and consumer buying behavior. With the increasing

urbanization, the Indian consumer is emerging as more trend-conscious. There has also been a shift from price considerations todesigns and quality as there is a greater focus on looking and feelinggood (apparel as well as fitness). At the same time, the Indianconsumer is not beguiled by retail products which are high on price butcommensurately low on value or functionality. However, it can be saidthat the Indian consumer is a paradox, where the discount shopperloyalty takes a backseat over price discounts 6.


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Indians have grown richer and thus spending more on vehicles, phonesand eating out in restaurants. The spending is focused more outsidethe homes, unlike in other Asian countries where consumers havetended to spend more on personal items as they grow richer7.Spending on luxury goods have increased twice as fast with 2/3 of

India's population is under 35, consumer demand is clearly growing.The mall mania has bought in a whole new breed of modern retailformats across the country catering to every need of the value-seekingIndian consumer. An average Indian would see a mall as a perfectweekend getaway with family offering them entertainment, leisure,food, shopping all under one roof.

1.1 Key Trends in Urban India:

* Retailing in India is witnessing a huge revamping exercise.

* Estimated to be US$ 200 billion, of which organized retailing (i.e.modern trade) makes up 3 percent or US$ 6.4 billion.

* India is rated the fifth most attractive emerging retail market: apotential goldmine

* Ranked second in a Global Retail Development Index of 30developing countries drawn up by AT Kearney.

* India is rated the fifth most attractive emerging retail market: apotential goldmine

* Food and apparel retailing key drivers of growth.

* Organized retailing in India has been largely an urban phenomenonwith affluent classes and growing number of double-incomehouseholds.

1.2 Key Trends in Rural India:

* Rural markets emerging as a huge opportunity for retailers reflectedin the share of the rural market across most categories of consumption

* ITC is experimenting with retailing through its e-Choupal andChoupal Sagar rural hypermarkets.

More than half of retail market in India is in the rural areas (55%);although share of urban market is increasing by almost 5% every 8-10years. Accommodating almost two-third of the country's consumersand generating almost half of the national income, the rural India


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offers tremendous opportunities for organized retailers which manycompanies have failed to access. According to the study conducted byNCEAR, the number of `lower middle income' group in rural areas isalmost double as compared to the urban areas, having a largeconsuming class with 41% of the Indian middle class and 58% of the

total disposable income.

Source: Census; National Council of Applied Economic Research(NCAER).

A look at the demographics reveals that the highest income levelshouseholds in the rural areas are 1.6 million as compared to 2.3 millionin urban areas. It has also been forecasted that the middle and thehigher income households are expected to grow to 111 million by 2007from the current levels of 80 million. Thus, it can be said that with 128million households, the rural population is nearly three times theurban. This vast demand base and size offers a huge opportunity that

MNCs cannot afford to ignore.

Traditionally, the small store (kirana) retailing has been one of theeasiest ways to generate self-employment, as it requires minimuminvestments in terms of land, labour and capital. These stores are notaffected by the modern retailing as it is still considered veryconvenient to shop. In order to keep pace with the modern formats,kiranas have now started providing more value-added services likestocking ready to cook vegetables and other fresh produce. They alsoprovide services like credit, phone service, home delivery etc.

The organized retailing has helped in promoting several nichecategories such as packaged fruit juices, hair creams, fabric bleaches,shower gels, depilatory products and convenience and health foods,which are generally not found in the local kirana stores. Looking at thevast opportunity in this sector, big players like Reliance and K Rahejashas announced its plans to become the country's largest modernretainers by establishing a chain of stores across all major cities.


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Apart from metro cities, several small towns like Nagpur, Nasik,Ahmedabad, Aurangabad, Sholapur, Kolhapur and Amravati aswitnessing the expansion of modern retails. Small towns inMaharashtra are emerging as retail hubs for large chain stores likePantaloon Retail because many small cities like Nagpur have a studentpopulation, lower real estate costs, fewer power cuts and lower levelsof attrition. However, retailers need to adjust their product mix forsmaller cities, as they tend to be more conservative than the metros.

In order for the market to grow in modern retail, it is necessary thatsteps are taken for rewriting laws, restructuring the tax regime,accessing and developing new skills and investing significantly in India.

1.3 An Overview of the Retail sector:

The Indian retail sector is highly fragmented with 97% of its businessbeing run by the unorganized retailers like the traditional family runstores and corner stores. The organized retail however is at a verynascent stage though attempts are being made to increase itsproportion to 9-10% by the year 2010 bringing in a huge opportunityfor prospective new players. The sector is the largest source ofemployment after agriculture, and has deep penetration into ruralIndia generating more than 10% of India's GDP.


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Source: Ernst &Young, The Great Indian Retail Story, 2006.

A look at the statistics shows that the retail sector in India is worth USD394 billion and is growing at the rate of 30% annually. An ICRIER studyhas found that retailing ($180 billion) contributes to 10 per cent of GDP

and employs 7 per cent (21 million) of the workforce. According to ATKearney, India is given the top ranking as the next foreign investmentdestination, as markets like China become increasingly saturated. Indiais the 4th largest economy as regards GDP (in PPP terms) and isexpected to rank 3rd by 2010 just behind US and China1. Over the pastfew years, the retail sales in India are hovering around 33-35% of GDPas compared to around 20% in the US. The table gives the picture ofIndia's retail trade as compared to the US and China.

Source: Economist, Let gradualism guide FDI in retail, 2006.

The last few years witnessed immense growth by this sector, the keydrivers being changing consumer profile and demographics, increasein the number of international brands available in the Indian market,economic implications of the government increasing urbanization,credit availability, improvement in the infrastructure, increasinginvestments in technology and real estate building a world classshopping environment for the consumers. In order to keep pace withthe increasing demand, there has been a hectic activity in terms ofentry of international labels, expansion plans, and focus on technology,operations and processes. This has lead to more complex relationshipsinvolving suppliers, third party distributors and retailers, which can be

dealt with the help of an efficient supply chain. A proper supply chainwill help meet the competition head-on, manage stock availability;supplier relations, new value-added services, cost cutting and mostimportantly reduce the wastage levels in fresh produce.

Large Indian players like Reliance, K Rahejas, Bharti AirTel, ITC andmany others are making significant investments in this sector leadingto emergence of big retailers who can bargain with suppliers to reap


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economies of scale. Hence, discounting is becoming an acceptedpractice. Proper infrastructure is a pre-requisite in retailing, whichwould help to modernize India and facilitate rapid economic growth.This would help in efficient delivery of goods and value-added servicesto the consumer making a higher contribution to the GDP.

. Segment analysis:

The structure of Indian retail is developing rapidly with shopping mallsbecoming increasingly common in the large cities and developmentplans being projected at 150 new shopping malls by 2008. However,the traditional formats like hawkers, grocers and tobacconist shopscontinue to co-exist with the modern formats of retailing. Modernretailing has helped the companies to increase the consumption oftheir products for example: Indian consumers would normally consumethe rice sold at the nearby kiranas viz. Kolam for daily use. With the

introduction of organized retail, it has been noticed that the sale ofBasmati rice has gone up by four times than it was a few years back;as a superior quality rice (Basmati) is now available at almost the sameprice as the normal rice at a local kirana. Thus, the way a product isdisplayed and promoted influences its sales. If the consumptioncontinues to grow this way it can be said that the local market wouldgo through a metamorphoses of a change and the local stores wouldsoon become the things of the past or restricted to last minuteunplanned buying.

4.1 Food and grocery retail:

The food business in India is largely unorganized adding up to barelyRs. 40,000 crore, with other large players adding another 50% to that.The All India food consumption is close to Rs. 900,000 crore, with thetotal urban consumption being around Rs.330,000 crore. This meansthat aggregate revenues of large food players is currently only 5% ofthe total Indian market, and around 15-20% of total urban foodconsumption. Most food is sold in the local `wet' market, vendors,roadside push cart sellers or tiny kirana stores. According to McKinseyreport, the share of an Indian household's spending on food is one ofthe highest in the world, with 48% of income being spent on food and

beverages.

4.2 Apparel retail:

The ready-mades and western outfits are growing at 40-45% annually,as the market teems up with international brands and new entrantsentering this segment creating an Rs.500 crore market for thepremium grooming segment. The past few years has seen the sector


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aligning itself with global trends with retailing companies likeShoppers' stop and Crossroads entering the fray to entice the middleclass. However, it is estimated that this segment would grow to Rs. 300crore in the next three years.

4.3 Gems and Jewellery retail:

The gems and jewellery market is the key emerging area, accountingfor a high proportion of retail spends. India is the largest consumer ofgold in the world with an estimated annual consumption of 1000tonnes, considering actual imports and recycled gold. The market forjewellery is estimated as upwards of Rs. 65,000 crores 9.

4.4 Pharma retail:

The pharma retailing is estimated at about Rs. 30,000 crore, with 15%

of the 51 lakh retail stores in India being chemists. According to VikasBali, Principal, A.T. Kearney (India) Ltd, "Pharma retailing will follow thetrend of becoming more organised and corporatised as is seen in otherretailing formats (food, apparel etc)". A few corporates who havealready forayed into this segment include Dr Morepen (with Lifespringand soon to be launched Tango), Medicine Shoppe, Apollo pharmacies,98.4 from Global Healthline Pvt Ltd, and the recently launched CRSHealth from SAK Industries. In the south, RPG group's Health & Glow isalready in this category, though it is not a pure play pharma retailerbut more in the health and beauty care business 10.

4.5 Music Retail:

The size of the Indian music industry, as per this Images-KSA Study, isestimated at Rs.1100 crore of which about 36 percent is consumed bythe pirated market and organized music retailing constitutes about 14percent, equivalent to Rs.150 crore 11.

4.6 Book retail:

The book industry is estimated at over Rs. 3,000 crore out of whichorganized retail accounts for only 7% (at Rs.210 crore). This segment is

seen to be emerging with text and curriculum books accounting toabout 50% of the total sales. The gifting habit in India is catching onfast with books enjoying a significant share, thus expecting this sectorto grow by 15% annually 11.

4.7 Consumer durables retail:


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The consumer durables market can be stratified into consumerelectronics comprising of TV sets, audio systems, VCD players andothers; and appliances like washing machines, microwave ovens, airconditioners (A/Cs). The existing size of this sector stands at anestimated USD 4.5 Billion with organized retailing being at 5% 12.

Source: E&Y, The Great Indian Retail Story, 2006.

As noticed in the figure above, the organized retail penetration (ORP) is

the highest in footwear with 22% followed by clothing. Though foodand grocery account for largest share of retail spend by the consumerat about 76%, only 1% of this market is in the organized sector.However, it has been estimated that this segment would multiply fivetimes taking the share of the organized market to 30 percent in thecoming years 1.

5. Industry analysis of the Indian retail sector:

Modern retailing has entered India in form of sprawling malls and hugecomplexes offering shopping, entertainment, leisure to the consumer

as the retailers experiment with a variety of formats, from discountstores to supermarkets to hypermarkets to specialty chains. However,kiranas still continue to score over modern formats primarily due to theconvenience factor.


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Source: IT Retailing: Are You In The Loop?, July 16, 2006.

The organized segment typically comprises of a large number ofretailers, greater enforcement of taxation mechanisms and betterlabour law monitoring system. It's no longer about just stocking andselling but about efficient supply chain management, developingvendor relationship quality customer service, efficient merchandisingand timely promotional campaigns. The modern retail formats areencouraging development of well-established and efficient supply

chains in each segment ensuring efficient movement of goods fromfarms to kitchens, which will result in huge savings for the farmers aswell as for the nation. The government also stands to gain throughmore efficient collection of tax revenues.

Along with the modern retail formats, the non-store retailing channelsare also witnessing action with HLL initiating Sangam Direct, a direct tohome service. Network marketing has been growing quite fast and hasa few large players today. Gas stations are seeing action in the form ofconvenience stores, ATMs, food courts and pharmacies appearing inmany outlets.

In the coming years it can be said that the hypermarket route willemerge as the most preferred format for international retailersstepping into the country. At present, there are 50 hypermarketsoperated by four to five large retailers spread across 67 cities cateringto a population of half-a-million or more. Estimates indicate that thissector will have the potential to absorb many more hypermarkets inthe next four to five years.


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2.0 The Hidden Challenges

Modern retailing is all about directly having "first hand experience"with customers, giving them such a satiable experience that theywould like to enjoy again and again. Providing great experience to

customers can easily be said than done. Thus challenges like retaildifferentiation, merchandising mix, supply chain management andcompetition from supplier's brands are the talk of the day. In India, aswe are moving to the next phase of retail development, each endeavorto offer experiential shopping. One of the key observations bycustomers is that it is very difficult to find the uniqueness of retailstores. The problem: retail differentiation.

The next problem in setting up organized retail operations is that ofsupply chain logistics. India lacks a strong supply chain whencompared to Europe or the USA. The existing supply chain has too

many intermediaries: Typical supply chain looks like:- Manufacturer -National distributor - Regional distributor - Local wholesaler - Retailer -Consumer. This implies that global retail chains will have to build asupply chain network from scratch. This might run foul with theexisting supply chain operators. In addition to fragmented supplychain, the trucking and transportation system is antiquated. Theconcept of container trucks, automated warehousing is yet to take rootin India. The result: significant losses/damages during shipping.

Merchandising planning is one of the biggest challenges that any multistore retailer faces. Getting the right mix of product, which is store

specific across organization, is a combination of customer insight,allocation and assortment techniques.

The private label will continue to compete with brand leaders. Sosupplier's brand wiil take their own way because they have aestablished brand image from last decades and the reasons can beattributed to better customer experience, value vs. price,aspiration, innovation, accessibility of supplier's brand.

Logistics:The focus of major retail expansions will be around the foodand grocery segment, with all major corporates entering retail through

this segment. With the objective to have better control over price,consistency in product supply as well as quality, there will be hugeinvestment in supply chain infrastructure. Worldwide, IT has been onthe forefront in SCM initiatives as it plays an integral role in automationand information sharing during the whole chain.

Warehousing: As retailers take control over the inventorymanagement as well as distribution across the supply chain,


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warehousing will play a pivotal role in the distribution process.Advanced computerized systems such as Real Time Warehouse ControlSystems would offer enhanced integration of information flow on a realtime basis, leading to more accurate inventory planning processes andelimination of wastages.

Merchandising: The growth in the size of the formats brings in thecomplexity of management of stock keeping units, which includesplanning of merchandise from sourcing till phasing out of the item. Theproblem becomes more intricate with in-house private labels whereretailers take the risk of product development and commit on theproduction quantities. Private label not only brings in additionalmargins for retailers, but also competitive edge in terms of positioningof products in respective categories. It is a big opportunity, asinternationally 17% of the sales are generated through private labels. Though merchandising decisions are largely taken with human

intervention, IT plays an important role as a decision support system,helping users in taking well informed decisions for merchandisemanagement.

Multi-formats: As retailers grow big and consumers' expectationchange, they will have to come up with different formats offeringdifferent value preposition to consumers. Managing of stores acrossformats, cities, regions and even countries through a singlemerchandising office can be a daunting task without requisite ITinfrastructure to facilitate the flow of information between stores,warehouses and the central merchandising office.

Customer Engagement: With increasing options in terms of formatsand increased penetration of the stores, customers will always havethe option to select from many stores. Retailers will have to devisemultiple ways of retaining their customers by bringing in events,loyalty programs, and better customer servicing through deeperunderstanding of consumers' preferences.

Multi-channel Retail: On the lines of international models, there isan evolving model of Click and Bricks, wherein brick and mortarretailers are strengthening their presence through supporting channels

like Web stores for reaching out to new customers as well as servicingof existing customers. All these other supporting channels like Web,catalog or Kiosk rely heavily on technology for execution.

Store Experience: Apart from basic store process automation, thetechnology can be deployed for better consumer experience in thestore. For instance, information kiosks within the store for comparing


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between different models of technology products can be a bigdifferentiator for consumers to shop from a particular store.

Similarly, even simpler technology initiatives can make consumers' in-store shopping experience more meaningful.

Retail Applications

With large corporate houses entering the retail sector and theconsequent entry of IT professionals from other industry verticals,awareness levels of IT managers in the retail industry have grown. There is still a need to display the benefits that accrue fromimplementing ERP and CRM applications in a retail organization.


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Technology Solutions

RetailChallenges

Technology Response/ Business Opportunities

PricingPressure

Customer data access for store associates

Integration of CRM data in pricing, promotion, and layout

decisionsCustomer-facing wireless devices to check prices andinventory and to suggest alternatives and upgrades

EmployeeProductivity

Remote/virtual training and collaboration tools (audio,video and Web) to reduce costs and keep employeestrained in latest techniques

Self check-out and customer kiosk systems

Daily updates on products, alerts, announcements, sales,and specials

Mobile and fixed devices enabled with multiple functions(eg inventory checking, overhead paging, security, pricescanning, and phone calls)

Electronic shelf labels

CustomerExperienceAcrossChannels

Multi-channel integration linking applications anddatabase across stores, Web and telephone channels

SMS to alert customers about promotions or shipmentorder/information

OperationalVisibility

AcrossEnterprises

Stock-out monitoring of shelf inventory

RFID for logistics

Fraud review of POS transactions

Integrated demand and replenishment systems

Staff management including hours, overtime, and rosters

Process management per store ie how long it takes toanswer and respond to calls, and who is doing what andwhen


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4.0 Strategies

4.1: Right Positioning

The effectiveness of the mall developer's communication of theoffering to the target customers determines how well the mall getspositioned in their minds. At this stage, the communication has to bemore of relative nature. This implies that the message conveyed to the


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target customers must be effective enough in differentiating the mall'soffering from that of its competitors without even naming them. Themessage should also clearly convey to the target audience that themall offers them exactly what they call the complete shopping-cum-entertainment point that meets all their expectations. The core

purpose is to inform the target customers about the offering of themall, persuade them to visit the mall and remind them about the mall.

The mall developer can create awareness about the offering amongthe target customers in a number of ways. Various communicationtools available to the mall developer for this purpose may includeadvertising, buzz marketing (WoM), celebrity endorsement, use of printmedia, press releases and viral marketing .Once the message is beingconveyed through these channels, the mall developer must add apersonal touch to his message by carrying out a door-to-doorcampaign in order to reinforce the message.

4.2: Effective Visual Communication

Retailer has to give more emphasis on display visual merchandising,lighting, signages and specialized props. The visual communicationstrategy might be planned and also be brand positioned. Theme orlifestyle displays using stylized mannequins and props, which arebased on a season or an event, are used to promote collections andhave to change to keep touch with the trend. The merchandisepresentation ought to be very creative and displays are often on non-standard fixtures and forms to generate interest and add on attitude to

the merchandise.

4.3:Strong Supply Chain

Critical components of supply chain planning applications can helpmanufacturers meet retailers' service levels and maintain profitmargins. Retailer has to develop innovative solution for managing thesupply chain problems. Innovative solutions like performancemanagement, frequent sales operation management, demandplanning, inventory planning, production planning, lean systems andstaff should help retailers to get advantage over competitors.

4.4:Changing the Perception

Retailers benefit only if consumers perceive their store brands to haveconsistent and comparable quality and availability in relation tobranded products. Retailer has to provide more assortments forprivate level brands to compete with supplier's brand. New product


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development, aggressive retail mix as well as everyday low pricingstrategy can be the strategy to get edge over supplier's brand.

5.0 Conclusion:

In their preparation to face fierce competitive pressure, Indian retailersmust come to recognize the value of building their own stores asbrands to reinforce their marketing Positioning, to communicate qualityas well as value for money. Sustainable competitive advantage will bedependent on translating core values combining products, image andreputation into a coherent retail brand strategy.

Key Opportunities in Retail

Employment opportunities in this sector:

The Indian retail sector offers an economic opportunity on a massivescale both as a global base and a domestic market. This sector yieldsmany positive results like generating more jobs and bringing numerousgoods to the consumers at reasonable prices. According to Ernst&Young's report `The Great Indian Retail Story' this sector is expectedto create 2 million jobs by 2010.

About 4 crore people are employed in retail trade, assuming eachperson supports a family of 5, this, implies that about 20 crore peopleare dependent on this sector. For a vast majority of the households,

retailing is a euphemism for a marginal existence. Modern retailformats have generated huge employment for the young and evensenior citizens and women wanting to work part-time (even in smalltowns). People have greater exposure to the technical aspects, trainingand also earn higher salaries along with bonuses and incentives. Withforeign companies opening expanding in India, employees are beingre-trained according to international standards and practices that arebeing bought in.

There is also an increase in the number of retail managementprogrammes and institutes. This will bridge the gap in availability of

talented professionals at the middle and lower levels. Successful Indianretailers are creating a robust second and third level of managementby hiring aggressively for these key roles. Talented professionals willput increased pressure on wage costs. Therefore operating margins,especially for mid-sized retailers, are becoming a poaching ground forinternational retailers once they enter India.


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With private companies getting into retail, there are people employedfrom diverse cultures (no room for reservations unlike governmentowned stores) where there is a sense of unity in diversity. Thecompanies are also employing people who are physically handicapped.The next few years are expected will see the sector offering new jobs

to 50,000 young graduates and diploma holders.

9. IT and latest development:

Technology has played a key role in retailers' efforts to compete in thisvolatile market. With e-tailing channels making its presence felt inIndia companies are using either their own web portal or are tying upwith horizontal players like Rediff.com and Indiatimes.com to offertheir products on the web 15 (www.alexa.com). IT has been used byretailers ranging from Amazon.com to eBay, in order to radicallychange the buying behavior across the globe 16.

Retailers worldwide are looking forward to increase their IT spendingby almost 15% in 2006, allocating almost half of this increase toapplication software with a particular focus on tools that facilitatemulti-channel customer relationships, point of sale systems, strategicmerchandising and supply chain management 17. The last 2-3 yearshave seen several retailers ranging from F&B operations to discountclothing implementing supply chain management (SCM) solutions toimprove core business processes such as global sourcing, distribution,logistics, innovations, transparency and visibility in financials andinventory, compliance and management of point of sale (POS) data.

However, organized retailers have not taken well to the concept of 3PL(third party logistics) due to their apprehensions of losing control overthe supply chain. Currently, the transportation is carried out partly byorganized service providers and partly by truckers and localtransporters.

In conclusion, it can be said that in order to deliver the levels of qualityand service that consumers are demanding; the organized retailers arein a pressing need for a single enterprise wide IT platform to manageoperations, which will become increasingly complex once the marketexpands.

RFID as Savior

In a retail store, RFID assists in inventory management. All items in aretail outlet sport read-only tags that contain the product code and itsdescription, including the batch number, expiry date and price. Theshelves, exit gates, and warehouses are fitted with sensors that read


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the information from the RFID tag and help in updating the inventorysystem in real-time. This way it helps in total asset visibility and tracksthe inventory stocking. It also ensures better process control forproducts in the store. In warehouses and container depots, containersare marked with RFID chips that contain details of origin, destination,

and other details. Entry and exit gates, vehicles, and cranes are fittedwith an antenna that senses the RFID tags, and records and updatesthe system to check for any deviation in the schedule. With precisetracking of the location of pallets and containers within the warehouse,it is easy to pinpoint unscheduled movements. The system alsoconsiderably helps reduce costs and time for check-in and check-out.

There was only one issue with RFID technology-it was unable to workon vessels holding liquids or made of metal. Now Wal-Mart's tech teamand its vendors have overcome this problem, inviting majordeployments. In India Globus, Pantaloons, and Madura Garments have

already Started testing RFID.

Point of Sale

In the retail industry, Point of Sale (POS) solutions have replaced thePC or cash registers to a great extent. Many POS systems connect toin-store computers that, in turn, link to computers at the company'sheadquarters. And, POS today has come of age. "Now the POS is notonly a billing machine, but has also become more intelligent. Today,POS can display advertisements and do data mining," says Sanat Rao,director of marketing, Emerging Markets, Embedded Markets Division,

Intel. Also, with well-designed software, POS can provide a simple,easy-to-use mechanism for cashiers to handle just about anytransaction, reducing training time, while improving productivity andcustomer service. Touch screens are popular in the hospitality andconvenience store industry, and are rapidly gaining acceptance inother retail markets. Some businesses choose to combine otheroptions with a touch screen POS.

Security Concerns

Fraud and theft, including employee pilferage, shoplifting, vendor

frauds, and inaccuracy in supervision and administration cost theIndian retail industry about Rs 550-600 crore every year. This isdespite the fact that most large modern format retailers use standardsecurity features such as CCTVs, POS systems, and anti-shopliftingsystems for greater control over fraud and theft. In financial terms,cost of this fraud constitutes about 2% of the organized retail sector'srevenues.


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With standalone networking systems, retailers run the risk of notgetting information quickly enough. According to Gupta, "We are usingLAN and WAN set-up connected by MPLS and VPN. All our stores areconnected through IP VPN."

Most retailers fail to provide communication between workers,customers, managers, vendor partners, and stores due to lack of directlines. This shortage of real-time information exchange takes a toll onthe quality of service, inventory, policy changes, and managementdecision-making. Here a converged solution that includes data, voice,and video communications becomes essential. This can include mobilecommunications providing information access to workers at everylevel, from stockroom to store to executive offices.

Other Technologies

HyperCITY have deployed I-Scan solution in all its stores. I-Scan allowscustomers to scan merchandise as they pick products off the shelf.Once customers finish shopping, they can hand over the device to thecustomer service desk and cash-out quickly.

Wal-Mart plans to invest in tags that sense the temperature ofsensitive products, making sure products on the shelf are safe, rotatedcorrectly, and in the right place. Internet protocol (IP) surveillance ispicking up steam. With IP cameras going for as low as Rs 7,000, thetechnology is ripe for deployment. CIOs can use it to monitor remote

locations over a LAN or the Internet.

Haryali Kisan Bazaar, one of the country's first retail initiatives by DCMShriram Consolidated, has created a retail solution in partnership withSAP and Polaris. The initiative, e-STARR (Systems and Technology inAgriculture and Rural Retail), offered a retail solution that helps Haryaliserve rural customers better, while creating a strong infrastructure foroperations spread over multiple locations. The SAP solutions, IS-Retailand SAP Retail store, were implemented by Polaris, which integrated itwith Polaris POS and Agriculture Service modules.

The Unconventional Player

Except Indian Postal Department, all other players, who are in theretail area, have prior experience in some kind of business. India Postwas serving people to a great extent. Now, they feel they can take upthe retail business in their own way. "We have got the best network,we have got experience in servicing people, and above all we have got


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good relationships with them," says S Samant, GM, India Post. IndiaPost has got 835 head post offices, 20,043 sub-post offices, and145,975 delivery offices, thus becoming, by default, the largest retailchain in India. Though India Post is not looking at serving people withproduct portfolios that can match big names in the retail sector, the

postal department feels no one can match their reach. Though thepostal department is not very tech savvy, it has some big plans tocomputerize its offices. As of now, 7,488 sub-post offices have beenconnected with LAN and 239 administrative branches are connected tothe National Informatics Center. Also, the public service departmenthas plans to interconnect 1 lakh post offices.

Source: Ernst & Young, The great Indian Retail Story, 2006.


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In order to meet with this rapid growth in demand the government hasshown its concern by providing an induction of Rs.140 billion and Rs.300 billion in the rural sector through its development schemes in theSeventh and the Eight plan respectively. The large players like ITC,

HLL, BPCL are realizing the potential of this sector and are seenexperimenting with new ways to tap this segment.

ITC spent 3 years and Rs. 80 crore on r&d to come up with the conceptof E-choupal and Choupal Sagar-rural hypermarkets 18. Through this,the farmers can access latest local and global information on weatherand market prices, scientific farming techniques at the village itselfthrough a web-portal - all in Hindi. E-Choupal also facilitates supply ofhigh quality inputs as well as purchase of commodities at theirdoorstep. The hypermarket (Choupal Sagar) provides them withanother platform to sell their produce and purchase necessary farm

and household goods under one roof.

Next in line, HLL came up with Project Shakti in late 2000 to sell itsproducts through women self-help groups who operate like a direct-to-home team of sales women in inaccessible areas where HLL'sconventional sales system does not reach. Another step to tap therural market was `Operation Bharat' wherein low-priced samplepackets of toothpastes, fairness creams, Clinic Plus shampoos andPonds face creams to 20mn households.

As a part of their rural strategy, BPCL introduced Rural Marketing

Vehicles (RMVs) that move from village and village and filling cylinderson the spot for rural consumers keeping in mind the low-income of therural population. The Company also introduced a smaller size cylinderto reduce both the initial deposit cost as well as the recurring refillcost.

Challenges faced by this sector:


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The industry is facing a severe shortage of talented professionals,especially at the middle-management level.

Most Indian retail players are under serious pressure to make theirsupply chains more efficient in order to deliver the levels of quality and

service that consumers are demanding. Long intermediation chainswould increase the costs by 15%.

Lack of adequate infrastructure with respect to roads, electricity, coldchains and ports has further led to the impediment of a pan-Indianetwork of suppliers. Due to these constraints, retail chains have toresort to multiple vendors for their requirements, thereby, raising costsand prices.

The available talent pool does not back retail sector as the sector hasonly recently emerged from its nascent phase. Further, retailing is yet

to become a preferred career option for most of India's educated classthat has chosen sectors like IT, BPO and financial services.

Even though the government is attempting to implement a uniformvalue-added tax across states, the system is currently plagued withdifferential tax rates for various states leading to increased costs andcomplexities in establishing an effective distribution network.

Stringent labor laws govern the number of hours worked and minimumwages to be paid leading to limited flexibility of operations andemployment of part-time employees. Further, multiple clearances are

required by the same company for opening new outlets adding to thecosts incurred and time taken to expand presence in the country.

The retail sector does not have 'industry' status yet making it difficultfor retailers to raise finance from banks to fund their expansion plans.

List of resources:

1. Ernst & Young, The Great Indian Retail Story, 2006.

2. FICCI - ICICI Property Services Study.

3. Let gradualism guide FDI in retail, Economist, 2006.

4. AT Kearney, GRDI 2006.

5. Retail scenario most developed in Bangalore, DH News service,According to Bijou Kurien, 6. President & Chief Executive - Life Style,Reliance Retail.


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emerging opportunity in retail ajay gupta

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