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Growth of Retail in India with Pantaloons as a ca s se study By, PARIDHI SARAOGI 2005 – 2006 A Dissertation presented in part consideration for the degree of M.A. Marketing

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Page 1: Growth of Retail in India with Pantaloons as a casse studys3.amazonaws.com/zanran_storage/edissertations.nottingham.ac.uk/... · Clothes were also purchased from the small local retail

GGrroowwtthh ooff RReettaaiill iinn IInnddiiaa wwiitthh PPaannttaalloooonnss aass aa ccaassee ssttuuddyy

By,

PARIDHI SARAOGI

2005 – 2006 AA DDiisssseerrttaattiioonn pprreesseenntteedd iinn ppaarrtt ccoonnssiiddeerraattiioonn ffoorr tthhee

ddeeggrreeee ooff MM..AA.. MMaarrkkeettiinngg

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ABSTRACT: This study was conducted to gather a deep insight into the Indian retail market. The

market for retail in India has had a history of being extremely fragmented, with 97% of it

being formed by the unorganised sector. Organised of modern retail can account for only

about 3% of the Indian retail market. But with favourable changes in the environment, all

eyes are set on an expected boom in the retail industry, with large domestic players

entering the arena and powerful global players looking for a door to enter. Thus a huge

growth in the organised retail sector is expected in the next five years.

The objective of this study is to analyse how the present Indian retail king, Pantaloon

Retail India Ltd (PRIL) should maintain its supremacy in the face of competition. The

company has formed at aim to provide every product that every consumer wants in every

market. Following this dream they propose to fight competition. Research in this study is

aimed at finding out how can the company turn its dream to reality in the face of

competition. Various theories on retail growth were analysed in this respect and used to

carry out the study.

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CONTENTS: Chapter 1:INTRODUCTION………………………………………………..1 Chapter 2: LITERATURE REVIEW………………………………………..6 2.1 RESEARCH OBJECTIVE AND QUESTION……………….33

2.2 METHODOLOGY……………………………………………35

Chapter 3: CASE STUDY 3.1: Review of the Indian retail market……………………….…..37

3.2 Company Review……………………………………………...50

Chapter 4: DISCUSSION…………………………………………………..57

Chapter 5: CONCLUSION…………………………………………………68

References………………………………………………………………… 71

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AACCKKNNOOWWLLEEDDGGEEMMEENNTTSS I would like to thank all those individuals whose inputs and experience helped me write this dissertation. I would like to express my sincere gratitude to Ms Deborah Robert, my supervisor, for her guidance and encouragement. Her support was indispensable in completing this dissertation. I would then like to express my sincere Gtatitude to Mr and Mrs Kishore Biyani, and Mr Dipayan Vaishya of Pantaloon Retail to support me in this study. I would also like to thank the entire staff of Pantaloon for being supportive in my effort. I would like to thank my parents and my friends for their constant support and encouragement. It would not have been possible for me to do this work without the support of my friends Abhishek, Pritha, Aditya, Tania, Neha, and Akshay.

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Chapter 1:INTRODUCTION:

In most developed countries, retail is seen as one of the major drivers of economic

growth. The retail structure in these countries comprises mainly of organised or modern

retail. Most markets in the west from the point of view of retail have matured and

saturated. Thus the global powers are turning their eyes towards greener pastured, that is,

markets that are untapped, and offer great potential for growth. Wal-Mart is the world’s

largest retailer. Already the world’s largest employer with over 1million associates, Wal-

Mart displaced oil giant Exxon Mobil as the world’s largest company when it posted

$219 billion in sales for fiscal 2001. Wal-Mart has become the most successful retail

brand in the world due its ability to leverage size, market clout, and efficiency to create

market dominance. Wal-Mart heads Fortune magazine list of top 500 companies in the

world. Forbes Annual List of Billionaires has the largest number (45/497) from the retail

business.

The retail sector in India is the second largest employer in the country after the

agriculture sector. Being one of the most attractive emerging markets in the world, India

has become a hot destination for retail forays. It was ranked second in a Global Retail

Development Index of 30 developing countries drawn up by AT Kearney. AT Kearney

has estimated that the retail market will grow at a CAGR of 30% over the next five years.

While the share of organized retail is only about 3% currently, it is expected to grow at

the rate of 25-30% per annum and revenues from the sector may triple from the current

level of US$ 7.7 billion to US$ 24 billion by 2010.

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According to a KPMG report, growth in organized retail is expected to be stronger than

GDP growth in the next five years. This is mainly because the modern Indian consumer is

richer, younger and more aspirational than ever before and the nascent organized retail

sector is showing signs of being able to keep up with its customers. Shopping malls,

supermarkets and hypermarkets are springing up in cities all over the country and foreign

brands have never been more popular. With the sector opening up to FDI, new

opportunities have also opened up. It is expected that rapid growth will come about

especially in three key segments - food and grocery, apparel and household improvement.

However, until recently, the citizens of the world’s largest democracy were not free to

choose what they wanted to buy or sell. Production of consumer goods was constrained

by the “License Raj” while other laws and regulations limited the size of manufacturing

units. Investments in new products were discouraged, multi-nationals were kept at bay

and imports were held back by tariffs that often exceeded 200 percent.

In India, the “License Raj” hindered the development of the organised retail. The era of

the 60s was basically an era of shortages. Even basics like milk, kerosene, sugar and

staples were hard to come by. Family owned stores dominated the grocery business and

manufacturers, under Government control, fixed prices. The retail establishments could

not develop any competitive advantage in terms of price, range or service. The stores that

existed were not aspirational in any sense and the only chain stores that existed were Bata

and textile show rooms. They themselves were not big crowd pullers and carried the

perception of providing standard quality at standard prices.

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The modern Indian consumer however, is very different from the consumer of the 60s.

The Indian middle class has more disposable income and a greater propensity to

consume. They are better informed than their predecessors and are more value conscious

and health conscious at the same time. The Indian consumers are astute on trade offs

between convenience, discounts, choice and status and buying decisions are now more

complex than ever before. Festivals and seasons are no longer the big buying periods as

the weekends are the modern day festivals and the malls are the temples.

The Indian retail market has undergone a sea of change since the early nineties till the

present time. This highly fragmented retail market, with organized retail in a very nascent

stage had negligible organized retail in the early nineties. There were no large

departmental stores that catered to every need of the consumer. Also, there were no

supermarkets, grocery chains, no foreign brands for clothes, shoes and other everyday

products. There were very few local brands for clothes which also operated through small

retail outlets and did not have large stand alone stores. The Indian consumer was

habituated to buying grocery from small local shops which did not stock every item

required on a usual basis. Clothes were also purchased from the small local retail stores

which kept a few Indian brands. Foreign brands were not available in the organized retail

market. This scenario has changed with the growth of the retail giant Pantaloons

Industries which infused the concept of seamless departmental stores in the country.

Starting with stand alone stores, Pantaloons offered multi brand departmental stores to

the consumers and later also ventured into grocery chain and various other concepts.

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Thus, Pantaloons had a major hand in changing the face of retail in India and continues to

do so by exploring newer sectors. From manufacturing of clothes to retail, the company

has also entered the food market, the entertainment sector, the real estate sector, the

capital market and so on. The company is currently occupying the top rung of the retail

ladder in a country like India with a huge untapped retail market. Naturally there are

many other players both domestic and international which are looking at entering the

Indian market. The international chain Walmart, and the Indian industry Reliance are said

to be its keen future competitors. While facing the onslaught of competition, Pantaloons

fosters a dream to enter every market where the consumer consumes, and thus over come

the competition in this way. An Indian business magazine called Business today says that

“Biyani (Managing Director, Pantaloon Retail India Ltd)

Is seeking to build size and scale beyond conventional retail, across the entire consumer

space. This involves forays into an assortment of formats and businesses, right from

mobile phones and storage products to health, beauty and fitness products, from

pharmacies and salons to furniture and furnishings, consumer durables and electronics,

and from gold and jewellery and footwear to the entire gamut of financial products”

(2006).

The reason I have chosen this topic is because of my interest in the retailing sector and

the major change this industry has gone in India in the last few years bringing about a

change in the way people shop. The marketing modules I have studied would help me to

understand the market and the reasons for the development of the departmental stores.

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The research would try to highlight the growth of the departmental stores’ concept in

India by focusing on the growth of Pantaloons as a major retail chain all over India.

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Chapter 2: LITERATURE REVIEW

This chapter deals with all the concepts and theories relating marketing and retail devised

by experts in various field. Those theories which are important for our study have been

identified, comprehended and analysed and presented in this chapter.

In the primitive world, the prevalent form of retail was the local marketplace where

people sold their wares. In order to communicate the exclusivity of their goods to the

potential buyers, these sellers would keep on announcing the superlative qualities of their

wares throughout the day so as to attract the passing customers. Their voice and

salesmanship were the only marketing techniques these sellers possessed. This form of

selling then gave way to small shops, which was a very unorganised form of retail.

Sellers had their own speciality stores, which were often named after their family name,

and there were no chains of stores as we see today. As and when marketing techniques

became sophisticated, and with the advent of technological breakthroughs in various

spheres, this unorganised form of retail finally metamorphosed into the modern retail

environment that we see today.

Though the retail sector is much developed in the powerful nations of the world, like

America, United Kingdom and other European nations, it is still in an extremely

undeveloped stage in many third world countries like India and Bangladesh. The

importance of the growth of the retail sector in the economy of a nation and the life of its

citizens have been elucidated by Burt and Sparks, who say that ‘with the emergence of

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modern techniques of retailing and the rise of large retail companies and new retail forms

and formats, retailing has become much more visible and central to consumers’ and

governments’ concerns’ (Burt and Sparks, 2003, p. 3). They have even gone to the extent

of saying that ‘reflecting as it does cultures and consumer, retailing is the primary conduit

for production and consumption linkages in economies’ (Burt and Sparks, 2003, p. 3).

In the immensely competitive world of modern retail where big retail groups are taking

rapid strides to extend their presence globally, it is indispensable to understand the

concept of retail strategy and why it is important for retail organisations to adopt a

strategic perspective. According to Rosenfeld & Wilson (1990) ‘change is in part, the act

of crystal-ball gazing, looking into the future to predict what will be the context in which

organisations and individuals will exist.’ Many management experts have emphasised

the importance of change in the business environment. Stickland and Stickland (1998) are

of the opinion that ‘Managers are now confronted with a bewildering array of

approaches, techniques and strategies to assist them in changing some aspect of their

business for the better.’

There are many factors that induce change to take place in an organisational scenario. It

is generally seen that the changing nature of the workforce, technological upgradation,

economic shocks, competition, social trends and the world politics are the most common

drivers of change in a company (Robbins, 2001). Hence changes take place on a daily

basis not only in the external environment, but also in the internal environment of the

organisation. The managers need to be aware of how to deal with this complexity, and

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more importantly, how to anticipate future changes that are likely to occur. This is the

point where strategic management and strategic planning come into the picture.

Ansoff (1965) defines strategic management by saying that it is concerned with

‘positioning an organisation within its environment and to ensure its continued success’

(Burt and Sparks, 2003, p. 56). Burt and Sparks also state that decisions concerned with

strategic management, that is, strategic decisions, are ‘often not based on detailed

analysis but on extensive personal knowledge and intuition (2003, p. 57). Managers use

their own experience and acute sense of happenings to understand and interpret the

environmental changes and deal with them accordingly, when it comes to such decisions.

Thus, when a retailer sees the emergence of a new fashion conscious teenage consumer

segment, he proposes to tap the new market by establishing a store which caters

particularly to this segment, paying special attention to see that the prices coincide with

their spending power. Such a change can only be anticipated by intuition.

Paul Freathy (2003) described a strategic management model in his book, explaining it to

be consisting of five stages, as shown in the figure below. The relationships shown in the

figure are not ‘linear’ but ‘iterative’. ‘A linear representation would give the impression

that one stage of the process is totally distinct from another. The process should not be

thought of as a sequence of steps followed by managers, but rather stages that may be

moved through and which are likely to be repeated’ (Paul Freathy, 2003, p. 58). In order

to sustain in the competitive retail scenario, the managers must pay attention to this

concept and implement it in their working.

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FFiigg 22..11:: TTHHEE SSTTRRAATTEEGGIICC MMAANNAAGGEEMMEENNTT MMOODDEELL SOURCE: Paul Freathy, “The Retailing Book”, 2003, p.58

Strategic analysis

Business objectives

Operational objectives

Tactical choices

Corporate objectives

Implementation

Monitoring and review

Mission

statement

External environment

Divest from portfolio

Internal environment

Maintain portfolio

Add to portfolio

Increase market share

Improve gross margins

Market penetration

Increase profitability

Market development

Product development

Add four new stores Organic growth

Joint venture

Franchising

Merger acquisition

Add four new stores

Add four new stores

Add four new stores

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The first step to maintain a strong retail present in any country, the retailer must look at

reshaping and controlling supply relations. Robin Murray(1989 : 43) threw light on the

shift of emphasis from ‘the manufacturer’s economies of scale to the retailer’s economies

of scope, that is, the retailers developing innovatory information and supply systems

which allow them to order supplies to coincide with demand, and of the revolution in

retailing demanding and reflecting new principles of production, a new pluralism of

products and a new importance for innovation’ (Wrigley and Lowe, 2002, p. 51). Simply

speaking the onus of all product innovations, development of new products, marketing

communications and dominance of distribution channels is on the retailer and not the

manufacturer, as opposed to the situation which prevailed before the ‘retailing revolution’

in the UK in the 1980’s (Wrigley and Lowe, 2002, p. 52). Wrigley and Lowe also

mentioned that the shift in power could be highlighted by the fact that the retailing

companies are reaping more profits relative to the consumer-goods manufacturers.

To understand this in a clearer manner, the use of Michael Porter’s ‘Five forces’ model

can be made. In his model, he explained that there are five forces that determine industry

attractiveness and long-run industry profitability. These are the threat of entry of new

competitors, the threat of substitutes, the bargaining power of buyers, the bargaining

power of suppliers and the degree of rivalry between existing competitors. Thus each

firm should seek to find a place in this framework in order to ‘best defend itself against

these competitive forces or can influence them in its favour.’ (Porter, 1980, p. 4). The

model is illustrated below.

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Fig 2.2 : PORTER’S FIVE FORCE MODEL Source: http://www.tutor2u.net/business/strategy/porter_five_forces.htm

The Porter’s model can be applied to the retail industry as well. If the retailer is seen as

the buyer of the goods produced by the manufacturer, then going by Wrigley and Lowe’s

statement about the retailing revolution in the 1980’s, the bargaining power of the retailer

increases and the competitive forces within the model shifts in the favour of the retailer.

The strength of the bargaining power of the retailer can be explained by the growth of

large, modern retail firms, which have immense resources, manpower, technology and

influence, as well as direct insights into the consumer buying patterns. The direct

connection with the consumer brings the retailer closer to the consumer giving him a

chance to identify its real needs and wants. As a result of which the retailer also initiates

to produce its own products that are fine-tuned to the inputs received by the consumers

themselves and launches his own brands and labels. This proves to be another

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competitive force in the model, that is, ‘entry of new competitors’. Thus we see that two

of the competitive forces in the model shifts in favour of the retailer. The retailer can

strengthen his position in the bargaining process by threatening to discontinue to sell the

manufacturer’s products, by virtue of being a large avenue of selling the manufacturer’s

products. As such, the retailer is able to dictate terms to the manufacturer, extract more

discounts and increase the profitability of the retail organisation.

However, Galbraith (1980, 118) in his thesis, pointed out that, ‘ opportunity to exercise

such power exists only when suppliers are enjoying something that can be taken away,

that is, they are enjoying the fruits of market power from which they can be separated’.

Hence, due to the increase of the bargaining power of retailers, manufacturers aim to

form good cooperative relations with them, so as to induce them to extract large sales

volumes of their products vis-à-vis other rival manufacturers. This is how retailers are

able to maintain their supremacy in the market (Wrigley and Lowe, 2002).

The same model can be applied to the retail sector of a nation from a macro perspective

as well. Let us assume a hypothetical situation where a particular retail organisation is

being assessed for its competitive strength in the market as compared to its competitors.

Its strength to maintain its supreme position in the market full of competitors can be

increased if his bargaining power is higher than its suppliers, that is, the distribution chain

comprising of manufacturers and intermediaries. It can also overcome the threat from

new entrants by producing products under its own label and pricing them cheaper, as the

eradication of numerous middlemen can decrease the cost of procurement of the

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products. Again, the threat from buyers, which is the third force in the model, can be

overcome by observing buying patterns and taking care to make the whole purchasing

process for the customers in the store enjoyable for them, so that they become more loyal

to them and less inclined to competitors. In this manner, the retailer can increase sales

and become stronger than its competitors. The retailer aims to become so powerful as to

make its smaller competitors merge with them due to their falling profit curve as

compared to the strength of the former. Such mergers and acquisitions further strengthen

the competitive force of the retail organisation.

According to Stephen Brown (2001), retailing has been portrayed, as ‘a kind of

profiteering, an unwarranted service between consumer and retailer and its practitioners

have been the focus of popular hatred from below and mild scorn and condescension

from above’. This statement reflects the hostility inflicted upon the sphere of retail in its

nascent times. But as opposed to others in the business management arena, marketers

were the only ones who were less hostile than the others and gradually adapted

themselves to the field. As the sphere of retail matured over the years marketing tools and

concepts began to be applied to retail that began to be accepted more widely. In the

words of Brown, ‘as a consequence of revolutionary changes in the organisation

technique and environment of the industry, retailers now rank amongst the largest, most

sophisticated and dominant business organisations in Britain, Europe and beyond (2001).

This assisted in the development of the concept of retail marketing that is ‘adapting a

company’s product and service offer to the perceived needs of a target market segment or

segments’ (Brown, 2001).

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Many large retail firms who have adapted themselves to the new marketing-inclined retail

environment have indulged in market program planning. This practice is observed to a

very lesser degree in case of smaller firms. Goetsch(1993) has said in this regard that

‘owners of small businesses often tell me that they do not have time to prepare a

marketing plan’. They regard formalised planning to be a waste of time and resources and

to be of no utility to them. Research in this regard revealed that small firms disregard to

indulge in planning due to lack of support staff. Their lack of human resources do not

allow them the luxury of using them to indulge in long term competitive planning.

Another factor that stands in the way of planning is the high costs involved in the

activity. Theses firms do not enjoy the liberty of indulging in activities of trial and error.

Their limited resources prevent them from making any wrong decision, as they are less

able, as compared to large firms, to sustain the after effects of such errors. (Conant and

White, 1999).

Though experts like Robinson, Logan and Salem (1986), have supported the decisions of

small firms to avoid formal planning and concentrate more on daily operational planning

on the grounds that the latter is more likely to accelerate the degree of performance level

in the firm. I would like to disagree with this statement as the advantages of strategic

marketing planning outnumber its limitations that have already been elucidated above.

While, it is true that such long term planning may cause short term difficulties in the

operations of these firms, it is also true that in order to achieve the goals of growth and

higher sales, these firms should chalk out a formal plan of dealing with competitors and

winning and retaining customers. If the small firm fosters dreams of metamorphosis into

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a large firm, planning is the first step it should take so as to turning this dream into

reality.

The significance of marketing program planning and its virtues are reflected in the

definition penned by Pride and Ferrell (1997), who define it as ‘ the systematic process of

assessing market opportunities and resources, determining marketing objectives, defining

marketing strategies and establishing guidelines for implementation and control of the

marketing program’ (p. 532). Conant and White (1999) also voice their opinion in

support of planning by saying that though it finally leads to improved financial

performance, the entire planning process as a whole conjures certain valuable benefits,

which they tagged as ‘process benefits’. They also cited instances of such benefits,

namely, improved marketplace knowledge, identification of new products, more effective

control of the marketing mix, developing a better sense of customer needs and also

discovering new product lines that show high potential.

The amalgamation of the marketing concept in the retail sector has also been supported

by Cohan and Jones (1978). Just as the marketing concept concentrates on targeting the

right market for their product, retailers also target their products to a particular market

segment and tailor their communication and merchandising image to appeal to this

particular target market. ‘In response manufacturers need to differentiate their product

lines accordingly, ensure that their marketing programs are compatible with the new

retailing strategies, and pick key distributors with an eye to the retailer’ market image and

consumer franchise’ (Cohan and Jones, 1978, p. 46).

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In order to compete with the brand marketer who is armed with the weapons of

sophisticated marketing techniques, the retailer is left with two options. Firstly, he has to

develop his own brands and labels that are exclusive to attract the consumer and have

more value for the consumer. For this the retailer is free to exercise his power and make

use of foreign sources. Secondly, the retailer has to be careful to project a certain image

to attract a certain section of the market, that is, he has to add a certain value to the

merchandise he is selling. ‘Today’s retailer is selling more than just merchandise and

now has sophisticated tools with which to analyse markets and aim his appeals’ (Cohan

and Jones, 1978).

With the aim of selling a merchandising image to a certain well-selected target market, it

is indispensable for a retailer to carry out ‘Retail Segmentation’. The concept of retail

segmentation was recognised by Walter Salmon of Harvard Business School, many years

ago (Cohan and Jones, 1978).

Cohan and Jones are of the opinion that retail segmentation involves differentiating a

product to the extent to which its purchase and ownership becomes proportional to the

shopper’s self image (1978).

Retail markets can be segmented on the basis of price, that is, images are formed with the

conjunction of both ego as well as price (Cohan and Jones, 1978). For example, a

discount store selling apparel will project an image, which attracts a certain section who

shop for value for money. But an exclusive clothes boutique that sells designer clothes at

high prices caters to the premium section of the society who is ready to pay the exorbitant

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price, as the purchase satisfies their ego and yearn for exclusivity. Retailers who sell mass

products offering value for money are successful in selling staple products like kitchen

appliances, as these products are not directly associated with the image of a person.

Fashion-centric products are more flattering to the ego than staple products like groceries.

Cohan and Jones are of the opinion that ‘the number of competitors increases toward the

ego-involved end of the merchandising spectrum, where the opportunities for image

differentiation correspond to the various age, income and taste segments in the

population’ (1978). It also happens that the same customer who shops in the elite clothes

store for apparel shops for groceries in the discount store. Thus the same customer has a

different ego appeal for different category of products.

Mass merchandisers are making use of national advertising as a ‘natural extension of

classic marketing techniques’. But less centralised retail marketing also exhibit the

success of ‘scientific’ market positioning, by conducting extensive market research and

analysis and using marketing techniques to attract and retain target customers. Stores that

‘try to be everything to everybody feel the pinch, on one side by the value merchants who

are pursuing an even greater share of total general merchandise sales, and on the other

hand by style merchants who tickle the ego, and are seeking a bigger share of individual

spending from the affluent, fashion-conscious segment of the population’ (Cohan and

Jones, 1978).

Such broad-based stores that aim to cater to the entire population, have been criticised on

the ground that they do not realise the significance of retail segmentation can be regarded

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as a vestige of the past. Even though such stores still exist, they are being driven out of

the market by stores that specialise in trading above and below their segment.

Preddy(1996) in his article illustrated the concept of segmentation on the basis of their

disposition towards promotion. According to him ‘fierce price competition clearly places

pressure on retailers, not only from the perspective of maintaining competitive edge, but

also because consumers are becoming increasingly demanding in their expectations

(Preddy, 1996, p.4). in today’s promotion oriented marketing and retail world, the

customers have become habituated to getting offers like discount coupons, multibuys and

value packs which cause a drain on the profits of the firm. Preddy has patronised the use

of the concept of loyalty cards as a promotional tool. This also provides an underlying

benefit to the firm, by generating a mass of information about the customer. Loyalty

cards help to reveal information relating to demography, purchase behaviour, tastes and

preferences of the customers.

Such customer database is also used as a medium to recognise those shoppers that the

retailer regards as ‘valuable’ and important. The information thus generated not only

reveals the identity of such shoppers, but also gives insights to prepare marketing

packages aimed specifically at these segmented special few. This information helps the

retailer to identify those shoppers who focus on shopping, that is, ‘shopper focus’, from

those who are more concerned with promotional offers while shopping, that is, ‘promo

focus’ (Preddy, 1996).

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Throwing light on the area of market communication, it can be said that successful

retailers are no longer dependent on just radio or print advertising, but have adapted to

the genre of television advertising. They now recognise the wide appeal and reach of

television as a medium of advertising in order to execute their dual goals of market

segmentation and image differentiation.

The discussion of the influence of various marketing related elements on the success of

retail activities is incomplete without including the concept of relationship marketing.

“Relationship marketing has been variously referred to as a new paradigm( Gronroos,

1994), an ‘emerging sub- discipline’ (Sheth, 1996) and ‘the new orthodoxy’ (Petrof,

1997) within marketing”(O’Malley & Tynan, 1999). Gummesson is of the opinion that

‘marketing is being seen as relationship management: creating, developing and

maintaining a network in which the firm thrives’ (2002). O Malley, Patterson & Evans

(1997) have given a concrete definition of relationship marketing saying that it ‘involves

the identification, specification, maintenance and (where appropriate) dissolution of long-

term relationships with key customers and other parties, through mutual exchange,

fulfilment of promises and adherence to relationship norms in order to satisfy the

objectives and enhance the experience of the parties concerned.

Analysing the different definitions given by marketing experts, I feel that relationship

marketing revolves around adopting an integrative approach, by tying the whole

organisation into a strong bond with the customer, with the aim of increasing the

organisation’s profitability while providing benefits to the customer. This can be realised

by bridging the communication gap between the different departments of the

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organisation, thus making the entire organisation adopt a holistic customer-centric mantra

of work. The customer on the other hand is expected to reciprocate by becoming what is

called loyal customers. This symbiotic relationship is the basis of relationship marketing.

Thus by forming long-term relations with the customers the retail organisations can

ensure greater sales volumes and higher profits.

In an era of intense competition every retail firm tries to gain an upper hand over the

other firms involved in the same business. One of the ways of gaining advantage is

customer retention, which can be done with the help of relationship marketing. Barnes

(1994) is of the opinion that ‘corporate profitability has been linked closely with

satisfying existing customers’. The focus for successful marketing is on retaining old

customers, as it is more cost effective than attracting new ones. Customer loyalty is

increasingly seen to be crucial to the success of business organisations, with the growing

realisation that attracting new customers is far more expensive than retaining existing

ones.

Dick and Basu (1994) look at customer loyalty as the strength of the relationship between an

individual’s relative attitude towards an entity (brand, service, store, or vendor) and repeat

patronage. It has been suggested that a way of increasing customer retention is through

secure relationships between buyers and sellers. Leanne H. Y. Too, Anne L. Souchon and

Peter C. Thirkell (2001) in their article related to relationship management and customer

loyalty in a retail scenario have also expressed similar views. I would disagree with Dick

and Basu that customer loyalty should not be seen synonymous to repeat patronage or

repeat buying. Repeat buying is often confused with loyalty. It should be noted that there

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are many other factors that may induce a customer to make repeated purchases, such as,

convenience, price and compulsion. But this may not necessarily mean that the

organisation has been successful in winning loyal customers. Though repeat purchase is

concurrent with customer loyalty to an extent, customer loyalty is a deeper concept. In

case of loyalty, the customer forms meaningful relationship with the customer, which is

based on trust and commitment. The difference can be highlighted with an example. A

housewife may make repeat purchase from the supermarket next door on the basis of

convenience of location, but whenever given an opportunity if she makes a trip to a

particular supermarket that she prefers, then the latter event is a demonstration of loyalty.

Though the concept of repeat purchase also assists the short term goals of higher sales for

the retail firm, for long term solid growth, the firm should look at converting repeat

buyers into long-term loyal customers.

A point to be noted in the customer retention theory is that it is not advisable for the

company to retain all customers. ‘Segmentation based on customer relationship

profitability analysis is a prerequisite for customer retention decisions’ (Gronroos, 1994).

Thus in reality, from their point of view, the retail firms should look at carrying out

‘intelligent relationship building and management’ (Gronroos, 1994).

Companies are carrying out relationship marketing in retail markets with the help of

customer databases. Use of sophisticated database management systems allow the sellers

to obtain a deep understanding of their customers, their preferences, thus enabling them

to cater to individual customers in a better fashion. ‘Interactive databases are making

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relational marketing a reality for consumer goods’ (Webster & Frederick, 1992). But such

information is often used without the knowledge of the customer and brings up the issue

of intrusion of the customer’s privacy. For the perfect relationship in consumer markets,

it is advisable to make the consumer aware of the budding relationship and make him an

active partner in the same.

In a research conducted by Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell

(2001), the relationship between relationship marketing and customer loyalty in a retail

setting has been emphasised. ‘Customer perceptions of relationship marketing efforts

impact favourably upon the formation of trust and commitment, leading in turn to

increased loyalty’ (Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell, 2001).

Hence from the point of view of customers, how they perceive the relationship marketing

efforts is more important, than how it is implemented in reality. Hence, the retailers

should not take it for granted that only by conducting such activities they will bear the

desired fruits. ‘The catch-cry must become one of being seen (by customers) to engage in

marketing activities that enhance the totality of the customer experience, including the

perceived quality of any relationship that may develop’ (Leanne H. Y. Too, Anne L.

Souchon and Peter C. Thirkell, 2001). Another important insight is that the retailers

should try to ‘emulate a “small store” ethos even by larger retail stores’. (Leanne H. Y.

Too, Anne L. Souchon and Peter C. Thirkell, 2001).

Another implication from the research conducted by Too, Souchon and Thirkell is that

retailers must use and adapt technology in a creative manner in order to increase the

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impact of relationship marketing efforts. ‘Even in-store equipment can add “relationship”

value to the overall customer experience, for example, point of sale technology, now

allows easy aggregation of customer information into a central database, even for stores

with multiple branches’ (Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell,

2001). Lastly, the retailer should be able to find techniques in differentiating between

casual shoppers who just make a casual purchase and actual customers who invest time

and effort in the whole exercise. In order to successfully derive the benefits of the

relationship marketing strategy, the retailer should recognise and concentrate on the

latter.

There are many retail firms whose ‘new operations generally are related closely to

present ones in terms of the merchandise lines they carry, the trade areas they serve, or

both. Thus the firm can capture incremental business and also obtain the twin advantages

of further capitalising on its competitive strengths and of reducing the risks and

uncertainties of entering a new business’ (Cort and Dominguez, 1977). In other words,

some retailers, in lieu, of expansion, offer the same merchandise lines with some changes

such as targeting a separate segment. This brings out to the question of cross shopping.

This phenomenon occurs when a single customer patronises multiple types of retail

outlets which carry the same broad lines of merchandise, for instance, furniture, shoes,

women’s clothing. These outlets are operated by a single firm and are aimed to appeal to

various target segments. Experts have viewed cross shopping as a disagreeable event, as

they create new outlets with the aim of increasing its customer base, rather than providing

more alternatives to the already existing customers. But Cort and Dominguez (1977)

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extend support to the concept by conducting a study which showed that ‘cross shopping

need not be siphoning. It can produce incremental business for the firm, if two outlets

together satisfy a set of needs that either type could serve singly’.

Thus it can be inferred that cross shopping can be supported when the shopping needs

that it meets do not overlap. For example, in case of apparel, a woman wants to purchase

premium garments for eveningwear, but spend less on clothes to be worn to work. She

shops from a lifestyle oriented and value oriented outlet managed by the same retail

group. In such a case even though cross shopping takes place it is not bad for the

company, as two different needs are being fulfilled.

Cheryl Burke Jarvis (1998) voiced her concern on an important current issue, which had

immense potential to affect the retail industry. Her research concentrated on the ongoing

issue of the rise in the popularity of E commerce and the Internet and how the retail

marketer for his benefit could use this medium as a tool. In her words, ‘as leaders in the

retailing industry wrestle with big picture questions about how to adapt and survive in a

future of electronic commerce and out-of-store shopping, retail managers today are

already creating innovative technological solutions to more traditional retailing

challenges’ (Jarvis, 1998). On analysing the research made on this issue it was observed

that such innovations like the internet and E commerce can be effectively utilised to

enhance common management activities like employee training, inventory management,

delivery systems, market research and customer relationship development.

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While using the tool of E shopping in the retail industry, retailers first need to be aware of

who are their customers. It is indispensable to be fluent with the personal characteristics

of the potential online shoppers so as to successfully enhance their shopping experience.

For instance in case of electronic products, the online customers are generally well-

educated, well-paid, male individuals where as in case of home-oriented products the

shoppers are generally females who are housewives. It can also be mentioned here that

the retailer should keep in mind that for products like apparel, where the customer

generally prefers to try and feel before purchase, the online shopping experience should

try and eradicate hesitation and suspicion on the part of the shopper to the greatest degree

possible.

Retailers should take care to construct search systems that are quick and do not cause

restlessness and irritation to the online shopper. If the search process is long and tedious,

the shopper loses patience. Retailers should also ensure that the first experience of an

online shopper is satisfactory, or else he will never indulge in the same again. The online

shopping systems can also be used to procure invaluable information from the users in

order to produce merchandise in conjunction with their needs.

The growth of online shopping, though useful for the retailer, also proposes to be a threat

to the profits derived from in-store shopping. Retailers can use the emerging new

technology as a defence against this threat, by using the new technology to improve the

in-store shopping experience. According to Jarvis (1998), ‘technology is enabling

creative conventional retailers to use the growing wealth of individual consumer

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information to customise the in-store shopping experience, improve shopping

convenience, provide knowledgeable and personalised service, and enhance the

entertainment value and ambience of their stores’. He also cites examples of such latest

technology, such as, infrared and video tracking systems. Their utility is to ‘monitor

shoppers’ traffic patterns and reset store layouts and displays to maximise outputs’

(Jarvis, 1998). Some grocery stores make use of electronic machines for self billing

which help the customer avoid the hassle of long queues and thus save time.

The ascent of the use of E shopping is a reality with which the retailers have to come to

terms with. Though retailers have to be careful not to let it eradicate their in-store

clientele, but at the same time, if strategically planned instead of viewing it as a foe, they

can use it to their own advantage. In fact in today’s competitive retail scenario all big

retailers are adopting online shopping websites in their basket of offers to their

customers.

Davidson , Bates and Bass (1976) penned the concept of a life cycle of a retail firm

which is said to pass through four stages. ‘During these different stages, firms use

different goals, go through different marketing phases, and even draw on different

resources’ (Fionto and Greenwood, 1976, p. 44). In the first stage there is rapid growth of

the firm, characterised by less competition, rapid sales but low profits owing to high

levels of inventory. The second stage occurs when the firm undergoes accelerated growth

with moderate competition, highest level of profits and incremental sales. With the

increase in the number of competitors, the firm enters the third stage that reflects a

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decrease in sales growth and moderate levels of profits. The fourth stage is characterised

by declining sales and eroding profits.

The role of marketing is different in different stages of the life cycle. Tyebjee, Bruno and

Bates (1983) have constructed a framework in this respect. According to them, in case pf

entrepreneurial marketing, the owner conducts all marketing and sales related activities.

Due to the uniqueness of the product, customers demand it even though the location is

not upto the mark. In case of opportunistic marketing, the owner hires some employees,

shifts to a better location and thus increases the prices of its goods and indulges in more

advertising. Responsive marketing occurs when levels of management become more

specialised. In this case prices increase, as the firm becomes more inclined towards

service, and more conveniently located for its customers. In case of the last stage, that is,

diversified marketing, the firms adopts many management levels and fosters a separate

marketing department. The prices decrease slightly to remain competitive and the firm

operates through multiple sites.

An important topic of discussion, which is related to enhancing the strength of a retail

firm, is retail internationalisation. From reading the literature available on this topic, it

can be understood that retail internationalisation is the phenomenon of a retail

organisation spreading its wings over various other markets that lie across the borders of

their own nation. In this context, Kacher referred to various ‘push’ and ‘pull’ motives and

Alexander found lucrative overseas markets with niche opportunities as being the

principal motivating force behind retail internationalisation.

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Williams(1992) in his article on retail internationalisation has made a mention of various

causes that instigated the growth of the same. Firstly, he said that retail organisations

were driven by growth related motives, that is, more sales and profits, venturing into

various untapped markets which promised higher growth rates, and when the domestic

markets are not enough to meet growth related goals. Another factor that can be

mentioned here is that the domestic market is characterised by vices such as ‘maturity,

saturation and dominance, increased competition, exhausted or unsuitable diversification

prospects and excessive regulations’ (Williams, 1992, p. 8). Again, the foreign country

may have a retail concept, which is innovative and attractive that motivates the domestic

retailer to venture into newer pastures. It also may happen that a retailer decides to enter

foreign markets to fulfil a subjective need. For instance, the retailer may want to follow

to footsteps of competitors, or may receive an attractive offer from a foreign retail group,

or may want to utilise his surplus resources. Lastly, Williams explained that retailers also

get motivated by sophisticated retail tools and techniques they can imbibe from a foreign

retailer that may help to expand his activities in his domestic market. In some cases,

senior management motivations and economies of scale also influence retailers to

establish themselves in foreign markets.

It is imperative to mention the obstacles that prohibit the expansion of retail organisations

in foreign markets. Salmon and Torjdman emphasised on technical limitations such as the

small size of retail firms, which causes of absence of necessary resources and managerial

support for foreign expansion. Factors can be internal as well such as ‘perceived higher

risks, insufficient resources and previous failures’ (Williams, 1992, p. 9). Williams also

can be related to the wider environment in which the organisation functions such as

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hostility in the foreign market, prohibitive restrictions in the economy of the foreign

market towards entry of foreign retailers, high currency fluctuations which may cause the

retailer to lose money and threat of stiff competition from the local players in the foreign

market who are enjoying an established presence in the market.

Analysing the theories of experts it can be seen that retail internationalisation is an

attractive tool for retailers to expand themselves, rewrite their domestic success story in

another unfamiliar market, grow stronger and gain more power in the form of profits,

scale and expertise, and also acquire new techniques and technological innovations of

retailing. But good as it sounds in theory, its implementation is not always so simple. The

firm must make sure to properly research the foreign market before entering, especially

making themselves familiar with the culture and tastes and preference of the consumers.

It does not always happen that their working techniques that have been successful in the

domestic market will make them win over the foreign market as well. Hence while

entering new markets the large retail firms should not underestimate or overestimate the

local players and make full advantage of their strengths and weaknesses.

The retailers can adopt various strategies while going international. Goldman (2001)

described various strategies that a firm could adopt while establishing themselves in an

international market. A firm can adopt a ‘global niche positioning strategy’ that proposes

to establish and maintain a ‘global niche in a global segment through a high level of

standardisation’. An ‘opportunism strategy’ concentrates on studying and adapting

strategies prevalent in the foreign country, in order to reap the benefits provided by

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opportunities in the foreign country. He also spoke about a ‘format pioneering

opportunity strategy’, which involves the development of a ‘regional format that is

replicated within a specific part of the world’. A ‘format extension compatible country of

origin strategy’ deals with using an already successful domestic strategy in a foreign

market with minimum changes. On the other hand, a ‘portfolio-based format extension

strategy’ is based on the same concept but instead of using a domestic strategy the firm

utilises a non-domestic format. Lastly, a ‘competitive positioning oriented strategy’

emphasises on the ‘maximisation of the key strengths of the format in light of existing

indigenous competition’ (Goldman, 2001). Hence the retail firm should analyse the new

market and choose the correct strategy while expanding internationally.

Retail internationalisation can take place only when the foreign countries are willing to

allow foreign retailers to enter their market and trigger the growth in the retail sector.

This concept can be applied mainly in underdeveloped countries looking to improve the

growth rates of their economy. Anderson (1971) in his article has elucidated the

importance of economic growth of the underdeveloped nations expressing concern on the

‘wide economic and social disparities existing among the nations of the world’. He also

emphasised how the wealthier nations are also involving themselves in instigating the

economic growth and improving the standard of living of these backward nations.

Anderson says that ‘the growth of GNP can be achieved, assuming actual output is less

than potential output, by short-run increases in aggregate demand relative to aggregate

supply and/or by comparable increases in both aggregate supply and demand’.

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If a nation improves its resources it can achieve high levels of aggregate supply but if

there isn’t enough demand to match the supply, then it could conversely result in the

growth of higher levels of unemployment and idle industrial capacity, which worsens the

economic state of the country in question. The growth of modern retail in such countries

can solve this problem to a large extent. ‘ To facilitate developmental planning, we must

be capable of predicting the influence of various investment alternatives, which includes

retailing, on the composition and absolute size of economic activity’ (Anderson, 1971, p.

26). In this regard, foreign retail organisations can assist the growth process by entering

these underdeveloped markets and applying their sophisticated marketing expertise and

financial power.

Anderson also gave as the concept of the ‘ retail pull’, which explains how retail growth

can be achieved in underdeveloped markets through entry of foreign retail investors.

From the point of view of the foreign retail organisation, the immense potential of the

untapped markets in these underdeveloped nations attracts them to make such investment.

Thus they will only participate in such a project being attracted by huge profits and will

not be truly concerned with real growth in the underdeveloped countries. Hence the host

country must be careful to introduce a clause that the foreign retail organisation should

‘gradually purchase by an agreed-upon time schedule, more and more of the goods

needed for its operations from indigenous suppliers’ (Anderson, 1971, p.27). In the

process the foreign retail firm has to work towards the development of the small and

under-resourced indigenous suppliers. This chain of events influences the growth of retail

trade and suppliers of the host country (Anderson, 1971).

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For the retail pull theory to be successful, care should be maintained that the retail effort

undertaken is ‘market sensitive’ that is, in tune with the indigenous consumers tastes and

requirements. It this is not done then the whole effort may result in a misguided

investment that will have an adverse effect on the growth aspirations of the country.

On deeper analysis, Anderson’s retail pull theory can be applauded on the ground that it

concentrates on improving the economic growth of underdeveloped nations. Through the

growth of the retail sector of these countries, the theory proposes to improve the quality

of goods by improving the efficiency of suppliers by providing them capital and other

resources. But at the same time it can also be criticised on the viewpoint that the foreign

retailer would in turn control the retail market of the host country. The local retail firms

would be unable to match the resources available to the large foreign retailer and

indigenous retail growth would be hampered. Even if the indigenous government makes

rules to protect the local players, they would always face the threat of the foreign

competitors finding loopholes in the government policy in order to reign supreme in their

market.

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2.1 RESEARCH OBJECTIVE AND QUESTION:

The literature review consisted of various theories on retail growth, penned by experts,

who have commented on the retail growth structure of developed countries like UK, USA

and other European nations. The theories presented above concentrated on various

aspects connected to the growth of a retail firm. Strategic decision-making is

indispensable for the retail firm to deal with future changes that may question their

existence in the market. The theory of competitive bargaining power is also cited which

looks at how a retail firm should enhance its bargaining power as compared to the

manufacturers of the products they sell. Micheal porter’s Five force model is also used to

support this theory and also to establish how a retail firm needs to maintain its supreme

position vis-à-vis competitors, buyers, suppliers and substitutes.

The literature review then concentrates on various marketing related aspects of a retail

firm such as marketing program planning, segmentation, using loyalty cards as an

important promotional tool, communication, relationship marketing, increasing customer

loyalty, cross shopping, use of technological innovation and retail internationalisation.

All these topics have been discussed at depth to establish the connection of retail and

marketing.

Lastly, the theory of retail internationalisation has been explained which revolves around

a retail firm’s quest to expand itself on a global level. In this context the concept of retail

pull has also been explained which emphasises on the underdevelopment of the

economies of the third world countries, and how the retailing can be used to overcome

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this problem. The retail giants of the developed countries have been motivated to assist

the underdeveloped countries in this regard.

All the concepts and theories presented concentrate on how to help a retail firm grow and

maintain its successful position in the market, whether it is domestic or international.

Most of the research presented in the literature review concentrates on developed

countries. There is lack of empirical academic evidence regarding the growth of retail

firms in underdeveloped countries.

The objective of this dissertation is to research the growth patterns of a retail firm in

India, which is an underdeveloped economy, on the basis of the literature review

presented. For this purpose, Pantaloon Retail India Ltd., which is the most successful

retail organisation in India, at the moment, is used as a case study. The retail group has a

plan: to meet the entire family’s need under one roof.

The specific research question, which this study aims to answer, is:

“ How will Pantaloons make its dream of fulfilling a consumer’s every need turn into

reality in the face of competition?”

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2.2 METHODOLOGY:

This study was based only on qualitative research, as the research objective does not

involve any numerical studies. Qualitative research is “any type of research that produces

findings not arrived at by statistical procedures or any other means of quantification. It

can refer to research about persons’ lives, lived experiences, behaviours, emotions and

feelings as well as about organisational functioning, social movements, cultural

phenomena and interactions between nations” (Strauss & Corbin, 1990, p 10).

Qualitative studies lay emphasis on the use of more than one methods, and the data is

collected through case study, personal experience, introspective, life story, interview,

films and videotapes and even from data quantified for other purposes such as census

data. Only by carrying out one or two main methods the required results cannot be

achieved. ‘ The strength of qualitative research lies in the concurrent use of multiple

tools’ (Hall & Rist, 1999). Hence a good researcher should know how to create an

optimum mix of the ‘three legs’ that is interviewing, observation and document analysis

in the right proportion.

All the three methods have their own strong qualities which when combined

appropriately yield good research results. While focus groups and interviews provide

people with a platform to voice their true inert feelings, anxieties, problems and

dilemmas more accurately than any other research effort, observation ‘allows the

researcher to personally see and verify that a particular behaviour or interchange did or

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did not actually happen – independent of the respondent’s perception of that event’ (Hall

& Rist, 1999). As it is not easy to trust the verbal comments of people, it is important to

include written sources of information within the purview of these studies (such as

memos, letters, biographies, annual corporate reports). ‘Document analysis is used to

‘analyse written material into meaningful units, using carefully applied rules’ (Aaker et

al, p 100)’ (Hall & Rist, 1999)

In a qualitative study the researchers attempt to ‘describe and understand how people

make sense of their world’ (Cassel & Symon,1995, p 31), and do not assume the

existence of an objective truth. The qualitative researcher is like a craftsman who uses his

own style, skill, imgination and creativity to shape an otherwise ordinary object into a

piece of art. The data collected by the researcher is read, understood, analysed and

interpreted using his subjectivity.

The important qualitative research techniques used within the ambit of this research study

was mainly interviews, interviews, observation and documentation analysis. The latter

involved secondary data, with some primary data as well obtained directly from the

company. The secondary data was collected from academic journals such as the journal

of retailing, journal of marketing, journal of marketing research, European journal of

marketing and so on. Various company reports such as the HSBC report, Fitch report,

Ernst and Young report, KPMG report were also used to obtain knowledge on the Indian

retail market. The primary data was collected from the company, and through interviews

and observatory techniques

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Care was taken to follow all rules of qualitative research, and no intentional bias is

involved in the research.

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Chapter 3: CASE STUDY

3.1: Review of the Indian retail market

Retail has played a major role world over in increasing productivity across a wide range

of consumer goods and services .The impact can be best seen in countries like U.S.A.,

U.K., Mexico, Thailand and more recently China. Economies of countries like Singapore,

Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector.

The story is not the same in many underdeveloped countries of which India is a prime

example. A high level of fragmentation characterizes the retailing sector of India. There

are about 12 million retail outlets spread across the country, of which more than 80% are

operated by small family businesses. Such sellers utilize only household labour.

Traditionally, small-store (kirana) retailing has been one of the easiest ways to generate

self-employment, as it requires limited investment in land, capital and labour.

Consequently, India has one of the highest retail densities in the world at 6% (12m retail

shops for about 200m households).

At 271 million, India forms one of the largest consuming bases in the world, comprising

27% of the total population. The Indian retail sector is characterized by a high spending

community below 45 years comprising 81 percent of the population, a young population

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with 54% population below 25 years, an increased literacy from 44% in 1965 to 70% in

2003, an increase in working women from 1.3 million in 1961 to 4.8 million in 1998, and

an increase in media penetration to 38-million cable household and 80-million TV

household in 2001.

3.1.1 THE MATOR PLAYERS:

The major players in Indian retail can be divided into two broad categories- third-party

retail service providers (organised and unorganised); and manufacturers undertaking

forward integration to gain access to their end-customers. The different categories have

been well illustrated in the diagram below.

Fig 2: Different categories of retailers

Source :Fitch

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The major Indian retail players are shown in the diagram below:

RETAILER OWNERSHIP

SHOPPERS' STOP RAHEJA'S

PANTALOON BIYANI'S

LIFESTYLE LANDMARK GROUP, DUBAI

WESTSIDE TATA'S

CENTRAL PANTALOON (BIYANI'S)

GLOBUS RAHEJHA

Fig: Top Indian retailers

Shopper’s Stop, one of the pioneers in Indian organised retail, established its first store

in 1991. A part of the C L Raheja Group, whose primary business acumen is in

construction, Shopper’s Stop has created a strong brand image, with an extensive network

of 15 department stores across eight major cities. The company faced stiff operational

pressures during 2000 and 2001 following its rapid expansion, which led to accumulated

losses. However, since then it has come a long way, taking effective corrective action and

has turned around its operations, resulting in profitability from 2002. Shopper’s Stop is

one of the larger players in the department store segment, and has established a strong

national retail brand over the past few years. To enhance its margins, it has focused on

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developing private labels, currently estimated to account for around 20% of annual sales.

The rating factors in the strong brand equity enjoyed by the chain in its existing markets,

the demonstrated scalability of its department store format and its professional

management team. The rating also considers the company’s comfortable liquidity

position and low level of debt for its size.

RPG was one of the early starters in the organised retail space. It operates mainly in

hypermarkets (Spencers) and food supermarkets (FoodWorld). It also has a small

presence in health and beauty formats (Health and Glow) and entertainment and music

(MusicWorld). RPG Group is one of India’s largest industrial conglomerates. RPG

Enterprises comprises more than 20 companies spanning seven business sectors, Retail,

IT & Communications, Entertainment, Power & Transmission, Tyres, Life Sciences and

Specialties. It has a turnover of more than USD 1.65 billion. The company opened its first

hypermarket in 2001 in Hyderabad. Following a change in business strategy, the

company changed the name of its hypermarkets to Spencers from Giant Hypermarket.

The hypermarket product mix is 60-40 in favour of grocery with the remainder

comprising higher margin products - garments, toys, footwear and general merchandise.

Currently, the total retail space under these hypermarkets is about 210,000 sq. feet.

The food supermarkets venture, FoodWorld is a 51-49 joint venture between RPG Group

and Dairy Farm. The JV was formed before FDI in retail was disallowed post 1997-1998.

Dairy Farm International Holdings (78% owned by Jardine Matheson) is a leading pan-

Asian retailer. There are about 95 FoodWorld supermarkets operating in south and west

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India. FoodWorld supermarkets are built to service a middle class household's monthly

shopping requirements at competitive prices. These supermarkets offer items of daily

household consumption; groceries, processed foods, bakery and vegetables. The company

plans to expand into the south, and further increase penetration in the west. The average

size of a FoodWorld store is about 4000 – 6500 sq. feet. MusicWorld was the outcome of

RPG’s long standing association with music through HMV. Currently, there are over 170

MusicWorld outlets spread over 21 cities and this chain is still growing. Of late, the

company also ventured into travel services. Spencer’s Travel Services Limited is

currently the largest corporate General Sales Agent (GSA) in India servicing world

renowned global airlines like KLM, NW, Cathay Pacific and Sri Lankan Airlines.

Recent press reports suggest the joint venture between RPG and Dairy Farm may be

restructured. According to the reports, about half of the 95 stores will be retained by RPG

and the other half by Dairy Farm. RPG’s new stores will be called Spencers

Supermarkets and will use sales proceeds to expand further. According to press reports,

Dairy Farm is expected to divest 51% to stay within the FDI cap.

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3.1.2 THE ORGANISED RETAIL SECTOR:

The Indian retail market comprises of an array of traditional kirana retailers and other

smaller firms, with organized retail forming only 2.5-3% of the total market. In India,

orgainsed or modern retail is still in a very nascent stage of development and comprises

only 2.5 percent of the total market. It lags behind other emerging Asian markets like

Taiwan, Malaysia, Thailand and China to a large extent which have made huge leaps in

terms of retail growth in recent times. This is elucidated in the diagram given below:

Fig : Level of organized retail in emerging markets

Source: HSBC

The success story of these traditional kirana stores for numerous years reveals some

advantages over organised players. They are well established and recognised, have a low

cost structure without any hassles of maintenance and upkeep, are operated by the owner

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leading to high level of customer service, do not bear the brunt of high real estate

charges, and have low labour costs.

The poor performance of the organized retail sector is all set to be altered. But the

positive side, which will definitively give a sign of relief for the major retailers, is that

this minimal market share is growing at a healthy rate of 25-30% approximately annually.

This phenomenal growth rate is sustainable due to the change in consumer preference and

the increasing customer centric focus of these major retailers, pampering the customers

with convenience way beyond there expectations by giving them convenience in

shopping, an array of assortment to choose from, coupled with the fact that there is more

disposable income in the hands of the buyers. The organized retail sector proposes to

occupy 8% of the total retail market by the year 2010. Many Indian economists gauge

2010 to be a landmark in the history of Indian retail, due to the expected influx of foreign

retail giants like Walmart, and the emergence of large business organizations in the

Indian retail scene. The present retail scenario has a few players of which Pantaloon retail

India ltd occupies the topmost position.

Such growth is anticipated on the basis of various factors that drive it. A major factor is

increasing urbanization and rising incomes among the young. The country has a large

urban pool that is quickly growing. Real incomes are expected to grow by 5-6% p.a.

resulting in significant improvement in purchasing power Incomes are expected to grow

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faster in urban areas. Strong demographic growth is predicted in the main consumer age

brackets.

Another factor is that good quality supply of land is no longer a constraint, since

availability of retail space has historically been a growth constraint for Indian retail.

The biggest motivator of the expected growth will be the development of shopping

malls. In India, acquiring good quality real estate on a stand-alone basis is not easy,

especially in city centres, because of archaic tenancy and taxation laws. Despite this,

more than 225 malls are expected to open over the next three years in more than 50 cities.

They will attractive to both value and lifestyle retailers.

Fig : The growth of mall development in India

Another important driver of growth is that profitable models have emerged across most

product categories. Hypermarkets, food supermarkets and discount retailers are the key

value retail formats in India. Only in the recent years have private sector retailers

recognised the growth potential. Standalone supply models have started to appear while

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others have started to open in the malls that are mushrooming all over the country.

Pantaloon is the leading Indian hypermarket operator. It has gained valuable experience

in modern format retailing over the last 10 years and is now the first Indian hypermarket

player to expand aggressively, through its hypermarket named Big Bazaar. The success

of hypermarkets has influenced the growth plans of other retailers like Trent (Star India

Bazaar), RPG Retail (Spencers) and department store players like Lifestyle and

Shoppers’ Stop (Rainbow Retail) who will have their own hypermarket formats in place

by the end of the year. These retailers are moving to tie up real estate over the next three

years and they are also preparing to increase the scale of their systems, technology, staff

and overall operations. In the lifestyle segment, most consumer players recognise the

immense growth potential. It has been anticipated that they will undertake two steps.

Firstly, existing lifestyle retailers (e.g. McDonald’s, Pizza Hut) will expand in the bigger

cities and enter smaller cities by becoming tenants in the new malls. Secondly, new

brands, both domestic and foreign, will enter the market to meet growing consumer

demand.

Again, another factor, which is directly favourable in driving the growth of organised

retail, is that the regulatory environment is becoming more favourable. The Indian

government is recognising the immense potential of this growth in the retail industry, and

is adopting a favourable disposition towards the same. In Mumbai a large supply of

defunct textile mill land is being released for commercial/retail/residential development.

In the capital, Delhi, and adjoining suburbs the government helped to release large tracts

of land for retail development.

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Fig : Different stages of growth in organised retail

Source: HSBC

3.1.3: GOVERNMENT REGULATIONS REGARDING FOREIGN DIRECT

INVESTMENT:

Prior to 1997, FDI was allowed in retailing to end-users but all applications were

considered on a case-by-case basis. This motivated Nanz Supermarkets of Germany and

Dairy Farm of Hong Kong to enter food retailing in India in the 1990s, in alliance with

the business groups (Escorts and RPG Retail respectively). Nanz exited the market within

a few years after opening about eight stores in Delhi. RPG’s Food World still has a

sizeable presence with about 94 stores across five states in the south and west. But the

alliance between Dairy Farm and the RPG Retail group has broken.

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In the late 1990s, the domestic trading community voiced their opinion against FDI in

retailing, on the ground that it would drive many small retailers out of the market, have

an adverse effect on self-employment opportunities and also result in job losses.

Retailing, with its low capital and infrastructure needs, is one of the easiest businesses to

enter and is an important part of the employment landscape. Due to political lobbying, the

government barred FDI in direct retailing in 1997-98.

The current government regulations prohibit the establishment of any foreign retail firm

to carry out direct retail operations in India. At present, the foreign retailers can enter the

market for consumer retailing only through signing franchise agreements with local

Indian players. For example, Marks & Spencer, McDonald’s, Domino’s, TGIF and

Adidas operate through a franchisee system. However, the rules regarding FDI in

wholesale trading are much more relaxed. This was allowed with the aim of reducing

inefficiencies in the system, introduce “best practices” and encourage employment.

Metro, the German hypermarket chain, entered India in 2003 in the cash and carry

segment amidst protests from local wholesalers and retailers.

In the last three years, extensive growth by domestic modern format retailers has resulted

in a rapid shift of market share in the big urban cities. Keeping this in mind, the argument

used in 1997 to bar foreigners from organised retailing holds less value as small time

retailers are still suffering due to stiff competition from these modern retailers. The small-

store still cannot avoid undergoing lost sales. However, the risk in relaxing FDI rules in

the country, remains that there will be a social/political backlash against foreign retailers.

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The domestic modern format retailers also form a set of lobbyists against this matter.

While some want to open the door to foreign retail, most are foster apprehensions about

domestic retailers being “crowded out.” These retailers are still young in the market and

are learning through trial and error, in order to bear the fruits of success. They are still

facing the problems of achieving industry status, struggling with regulatory hurdles and

fighting high transaction costs and weak infrastructure. If major foreign players also enter

the market, their extensive resources and aggressive growth plans will prove to be stiff

competitors for the local players. From a domestic retailer’s point of view, it would be

unfair not to allow the homegrown players time to achieve a critical level of scale before

opening the gates to FDI. This time horizon is expected to be at least two or three years.

However, global retailers have their eyes keenly set the Indian market due to changing

virtues like the supply of quality real estate, rising incomes, changing consumption

patterns and favourable demographics. Wal-Mart has already hiked its sourcing from its

Indian suppliers and press reports suggest that it has plans to outsource more than USD

5bn annually from India. Global apparel retailers (GAP, Tommy Hilfiger, M&S etc) are

expected to raise their level of outsourcing from India now that textile quota restrictions

have been lifted. We believe that on the basis of increased outsourcing from India the

global retailers are trying to establish a favourable position for themselves while in

negotiation with the regulators.

Research shows that the main factor that is making foreign investors keen to enter the

Indian retail market is that that there is sufficient demand in the top 67 cities in India to

absorb more than 900 hypermarkets by the year 2010. There are less than 30 operating

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today that gives us a clue of the scale of growth being anticipated. Keeping this potential

in mind, we think all retailers with hypermarket models will be winners in the near to

medium term as long as they scale up at a reasonable speed, if they are able to establish

capable management teams and infuse a good working culture. Growth is not an issue,

managing growth and sustaining profitability is the key challenge for these retailers.

3.1.4: CHALLENGES:

Apart from the problem of stringent rules regarding foreign direct investment in the

country, global retailers who are looking at entering the market face some other

bottlenecks as well. The poor infrastructure of the country poses to be a problem,

providing logistical challenges. The retail market in the country is still in an

underdeveloped stage, and is less appealing to potential employees, who are biased

towards conventionally sought after employment opportunities. As such, there is a

problem of lack of well trained manpower in the sector. Another factor which poses

problems is high taxes and outdated government laws. One aspect that the global retailers

have to be well versed with is that the Indian market is a heterogeneous market, with

varied consumption and purchase patterns across different regions. As opposed to the

global retailers, the domestic players have a better understanding of what works here, and

thus have an upper hand. The global retailers also must comply with the the Indian

consumer’s drive for choice. A spokesman from Pantaloon speaks that “we sell forty –

two different varieties of rice.” The market is also characterised by highly fragmented

pattern of consumption all over the country. This is elucidated in a statement made by the

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same spokesman who is of the opinion that “the product offering in two stores, twelve

kilometres away from each other is totally different.”

3.2 Compamy Review

Pantaloon Retail (India) Limited (PRIL) was incorporated on October 12, 1987 as Manz

Wear Private Limited under the management of Mr. Kishore Biyani. It was initially

started with a focus on "Mens-wear Retailing" in the small store format. This was

through franchisee outlets, Pantaloon Shoppes, with an average area under operation of

less than 1000 sq ft.

In late nineties, the company changed its focus to "Family Retailing" in the large

departmental / mega-store format (greater than 5000 sq ft). Thus, the company has

continuously evolved itself to fulfill the shopping aspirations of all the major class of

consumers, in order to gain higher share of their wallet. The company was converted into

a public limited company on September 20, 1991. It changed its name to Pantaloon Retail

(India) Limited on July 7, 1999.

The three members of the Biyani family, Mr. Kishore Biyani, Mr. Gopikishan Biyani and

Mr. Rakesh Biyani comprise the active Board of Directors for the company. Mr. Kishore

Biyani, Managing Director of the company holds a Post Graduate Diploma in Marketing

Management and has over 20 years of experience in manufacturing and marketing of

ready-made garments. Mr. Gopikishan Biyani, Whole time Director with more than 20

years of experience in textile business, looks after the manufacturing operations. Mr.

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Rakesh Biyani, a Commerce Graduate is a Whole time Director and manages marketing

and production.

From being a trouser manufacturer in the year 1987, the company has a come a long way

to become the largest retail conglomerate in the country. In an interview with the

Managing Director, it was revealed that according to him the fact that sets his company

apart from the others was based on his take on life, that is, “to think big and execute it, to

try something that nobody has done.” (Biyani, 2006)

Research on the company revealed the main factors which can be enumerated as the

strengths of the company.When we look at any global retailer we find what makes a

retail format unique is their focus on supply-chain and the economies of scale that

they gain due to bulk ordering, storage and distribution. Wal-mart the largest retailer

has managed this so well that they actually call the shots with their retailers and take

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delivery only when they need to replenish the stocks, thus saving significant

overheads. Pantaloon in India has employed a very similar strategy, and has always

remained focused on supply chain. Another factor that adds to its strength is the first

mover advantage in favour of the company. Pantaloon was the first Indian organized

retail player to successfully diversify across sectors and emulate its sales model. It

was able to acquire a significant amount of property at cheaper rates and become the

pioneer in a lot of formats, due to which the name Pantaloon has today become

synonymous with organized retail. Due to these reasons it has become a locally

known name and a very successful one at that.

The success of the company can also be credited to its ability to understand the

complex Indian consumer. What stands out about the company is that they have

studied global best practices and only emulated those strategies that they knew would

strike a chord with the Indian audience. They offer heavy discounts in all their

products and now are venturing into newer formats, all this comes from deep

understanding of the needs of the customer that would be very difficult for a multi-

national or a non-retail player to quickly emulate. An interesting insight gained from

an interview with the Managing Director can be mentioned in this respect. He

revealed that traditionally Indians have a mentality to shop in a crowded atmosphere,

which makes them feel that they are getting value for money. This observation has

been incorporated in the Big Bazaar hypermarket model of Pantaloon, which is

designed to look like a crowded market. This is regarded as the underlying factor

behind the success of this format.

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Another factor that drives its success is that Pantaloon has a wide retail presence

across various segments including food, fashion and footwear, home solutions and

consumer electronics, books and music, wellness and beauty, general merchandise,

telecom and IT, E-tailing, leisure and entertainment and financial products and

services. It has a healthy mix of retailing formats that cater to a wide cross-section of

the Indian society. Thus they are slowly capturing the largest share of the customer’s

wallet. The acquisition of experienced human capital from other retail companies we

find that Pantaloon has built a strong talent pool at the top and even for the next tier

of leaders and middle-managers. We find that Pantaloon had employed tools like

Balance Scorecard from early 2000, to ensure that the employees felt they were

treated fairly and given their due with the organization.

As every coin has two sides, research also reveals certain weaknesses of the

company. Pantaloon had entered the market, when there were no players and a lot of

market had to be created by them, requiring significant investments and had to suffer

from a long-term gestation period. The first few malls developed by them completely

stood out in the old Indian retail scenario and consumers took some time to

incorporate the habit of shopping in these stores rather than their traditional shops. As

a result costs took longer to recover that is a problem which later entrants would not

face. Even though the retail format is appreciated and valued by the customers, the

disposable income for the average Indian consumer is limited and he may be buying

goods on a more regular basis as he may not be able to invest the cash in such

transactions. Also the rural kirana stores work on a lot of good-will and credit-model

which would be very difficult for a big bazaar to compete with or match.

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It can be mentioned here that another weakness which retards the growth of the firm

is lack of proper infrastructure. We find that even if the efficiencies of scale may be

created by the multiple stores, due to lack of adequate storage facilities in case of

perishable goods and lack of speedy transportation facilities, a lot of the prospective

advantages for a large-store may be lost. It has been researched that Pantaloon has

planned a lot into the future and wants to capture the entire share of the wallet with its

venture into almost any sector where the consumer spends, but it may not understand

all the businesses equally well and once the sector does open up to global players, the

contracts made right now would be severed and this might lean that they cannot grow

at the proposed rate.

In the face of a retail boom in India, as the leading retail firm of the country,

Pantaloon is beset with growth opportunities. When we study the Indian market we

find that the disposable income has been steadily increasing, population is moving

towards urban locations, a younger population is taking control and all these factors

mean that there will be a lot of spending avenues for these people, which Pantaloon

can hope to capture. With the Indian consumer becoming more aware and quality

conscious we find that their craving for brands has increased and they look forward to

being offered the best brands and quality at affordable prices, with its models of low-

cost stores and its recent tie-ups with Liberty, Galaxy & Planet Sports, Pantaloons is

in a position to cater to these customers.

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When we look at the Chinese retail model, we find that their first steps in retail were

as a sourcing hub for players like Wal-mart and from there these companies setup

shop there and now China is the largest growing retail market and the biggest success

story of transformation from unorganized to organized retail. Similarly India is being

used as a sourcing hub by global retail players and once the FDI restrictions are

removed it could easily explode. When we study the Pantaloon groups recent

strategy, we find that while continuing to grow as a value player through Big Bazaar

and other value models, they are also trying to enter the life-style market with stores

like Central and exclusive home-furnishing stores. These markets have much higher

margins and thus the overall bottom-line could significantly increase if the

organization can successfully transform itself from a value player to a pan-value-

chain presence

While there are several visible opportunities, one cannot ignore the threats posed to

the retail firm. There is a major divide that exists between the urban and rural

markets. So the formats and understanding which pantaloon has for urban market

cannot be applied to their rural stores, also a strong sense of regionalism is one of the

key tendencies they will have to fight while trying to develop a pan-Indian presence.

The Global retail majors like Wal-Mart, Metro are all looking forward to enter the

Indian Retail market, with over 1 billion customers and the un-tapped market

potential. Once these players come-in, the models of sourcing will become global for

them and the level of competition will go up significantly, with the nascent players

competing with players who’ve been in the industry for over 50 years. The challenge

exists not only from global players but even local power-houses like Reliance,

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Godrej, Tata and RPG entering the retail sector in a big-way. All of these houses have

a lot of surplus funds and resources across industries to give Pantaloon a very hard-

time. Also with their diversified businesses they may have a lot more capital to invest

than Pantaloon can manage to generate or borrow. Capital deficiency could then,

severely hinder the growth plans of Pantaloon.

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Chapter 4: DISCUSSION In this section, we will analyse the case study with regard to the literature review that we

have prepared. Presenting a short synopsis of the case study it can be said that the Indian

market is in a very nascent stage in terms of development of modern retail, and is a very

lucrative market both for global as well newly emerging domestic players. Currently, the

nation has few big players in the retail market, of which Pantaloon is the most successful.

In the last decade, this company has recorded phenomenal growth but now, due to sudden

interest in the retail industry in India, its supremacy is being threatened and there seems

to be a question whether it will be able to match its expected growth levels. We will now

relate the growth theories devised by experts in the west to see how they relate to the

context of an underdeveloped country.

Let us begin by analysing the theory of growth stages. According to the theory proposed

by Davidson, Bates and Bass (1976) if a firm is facing moderate number of competitors,

recording high sales and highest level of profitability then it is said to be in the phase of

accelerated growth. In the last couple of years Pantaloon has made its transition from the

rapid growth phase to the accelerated growth phase. Going by the theory, the next phase

is deemed to be the phase of increased competition. The sudden influx of domestic

business houses such as Reliance, Birlas and so on, and the growing interest of large

global players to enter the Indian retail market may force Pantaloon to enter the third

phase and cause a decline in sales and profits. This may inhibit the company’s objective

of increasing its profits to a great degree by the year 2010. The company is already in the

‘diversified marketing’ phase where it has various management levels with a separate

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marketing department and operates through multiple sites. From that perspective in order

to fight competition, the firm can only make its management and marketing stronger.

At the junction at which Pantaloon is placed, that is, amidst threat of competition from all

directions, the management has to utilise the tool of strategic management. In order to

maintain its high growth rate and prevent the profits from falling, the management of

Pantaloon must indulge in strategic decision making as endorsed by Burt and Spark

(2003) and make use of the strategic management model derived by Paul Feathy. Already

the retail giant Pantaloon has anticipated some of the change and has planned to launch

its hypermarket model in various small cities in India so as to compete against the

Hypermarket giant Wal-Mart and Tesco which are due to enter India, and also counter-

attack the plans made by Reliance retail to establish itself across all small cities in the

nest few years.

Wrigley and Lowe’s (2002) theory on the control of supply relations is reflected in the

power of Pantaloon to influence the bargaining power of manufacturers, as compared to

other retailers present in the market today. But in order to face competitors like Reliance

who has presence in various industries including petroleum, chemical, steel, agriculture

and so on, and will procure products at very low prices, Pantaloon must ensure that his

strength vis-à-vis manufacturers increases further.

Let us analyse Micheal Porter’s five force model from the point of view of our case

study. The retail formats in India are just starting to pick up and the retailers yet do not

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have enough muscle to call the shots with the suppliers, but slowly as business picks up

and bigger players and wholesalers enter the market, the suppliers will have lesser pull.

With India developing as a global sourcing hub before it became a retail destination the

suppliers already have significant power.

There is a lot of talk of India being the next big retail destination and with a sizeable

untapped population, a lot of opportunities do exist, for potential competitors for

Pantaloon, which are being tapped in by various companies in their own way and we find

that a lot of players would want to enter the market both local and foreign like every

major Indian business house is seriously considering opening up a retail arm of its own.

We have already mentioned these potential entrants in various parts of the study. Out of

these, Reliance and Wal-mart pose most amount of threat to Pantaloon.

The customer in all this talk is really the king as he has access to all the buying options

and can chose to spend his income in the best way he deems impossible. Each retailer is

trying to come up with innovative strategies to give the buyers maximum satisfaction

and to ensure that he gets a grand shopping experience.

India while it has grown in the last few years and the disposable income has also come up

we find that there exist a lot of avenues in which a consumer would like to put his limited

income and all the major formats and competitors are fighting for this share of the pie,

resulting in threat from substitutes.

Analyzing the present rivalry in the industry for Pantaloon, we can say that there exists

a lot of competition from the unorganized sector. Though in the organized sector,

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Pantaloon has been successful in surpassing large domestic players like Shopper’s stop

and Westside, and has aced every format it has tried, in order to fulfil its wish of entering

every segment, it has to face specialized players already well-established in new avenues

that Pantaloons is still discovering.

Pantaloon aims to achieve high growth even in the face of competition and capture every

area where a customer spends money. Such a mammoth task will be impossible without

proper Marketing program planning. Conant and White (1999) have supported

planning by saying that though it finally leads to improved financial performance, the

entire planning process as a whole conjures certain valuable benefits, which they tagged

as ‘process benefits’. They also cited instances of such benefits, namely, improved

marketplace knowledge, identification of new products, more effective control of the

marketing mix, developing a better sense of customer needs and also discovering new

product lines that show high potential. Thus this theory of marketing program planning

which has been successfully adopted in developed countries, should also be adopted by

Pantaloon to realise its dream.

Pantaloon’s quest to fulfil every need of the consumer, while fighting competition, can

only be successful if the firm can properly segment what section of the market it is

targeting in every product or service that it is offering. Going by Cohan and White’s

theory, merchandise images have to be formed which has certain ego appeals for the

target customers. Pantaloon has successfully implementation of this concept is evident in

the success of its various formats like Big Bazaar, Food Bazaar. Taking the former as

example, the market segmented for this format was the lower class, and the lower middle

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class who were extremely price sensitive. The marketing effort carried out for Big Bazaar

was aimed at their target audience by highlighting the fact that they ‘sell their

merchandise at the cheapest prices possible’. The in-store shopping experience of Big

Bazaar is similar to a local Indian marketplace, which has a crowded atmosphere. This is

done because the retail firm realised that this particular segment in the Indian market

prefers to shop in a cluttered environment. As such the merchandise is not arranged in

clean aisles but in small islands. The success of this Indian hypermarket model was based

on successful segmentation and appropriate communication to the target segment on the

part of Pantaloon. If such practices in all the avenues which it is entering, then the same

success story can be replicated.

It is making use of customer information derived from tools like loyalty cards, in order to

gather insights about purchase behaviour and patterns. It can be said without doubt, that

in the retail industry in India, Pantaloon is the king of reading the purchase patterns of

consumers and delivering just what the consumer wants and how it wants. As the

company has already mastered this science, it will not face that much difficulty in

entering new consumer markets. In this area, the organisation also has an edge over the

new entrants who still have a lot to learn about the Indian retail market.

When it comes to relationship marketing and customer loyalty, Pantaloon has been

successful in winning loyal customers in their target segment. By using various

promotional and communication tools the company has established a loyal customer

database in every format that it has undertaken. It will be a difficult task for the new

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competitors to come and attract these customers in their direction. If the company

continues to win customers’ loyalty in new avenues as well then it can achieve

phenomenal levels of growth. Its relationship marketing strategies have been so

successful that the name ‘Pantaloon’ now evokes a feeling of trust and commitment in the

minds of even the most suspicious of customers.

Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell’s (2001) observation

regarding relationship marketing may be mentioned here. Going by their concept, rather

than the actual implementation, what the customers perceive of the relationship

marketing effort is more important. ‘The catch-cry must become one of being seen (by

customers) to engage in marketing activities that enhance the totality of the customer

experience, including the perceived quality of any relationship that may develop’ (Leanne

H. Y. Too, Anne L. Souchon and Peter C. Thirkell, 2001). This policy is evident in the

Big Bazaar format where the retailer’s quest to provide the customers with good value

products at the lowest price possible is well highlighted and instilled in the minds of the

consumers. Another insight is that the retailers should try to create the aura of small

shops in their large stores. Pantaloon has successfully carried this out in its departmental

store format called Central. Pantaloon should also make use of new technology to gather

more accurate customer information and make the in store environment even better to

suit the target market, while entering new avenues.

As suggested by Cort and Dominguez (1977) in the literature review, if pantaloon

continues to expand across many consumer markets it can encounter the problem of cross

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shopping. But by applying correct marketing techniques, and by ensuring that the correct

format attracts the correct target market, the firm can convert the effect of cross shopping

as an amplier in its growth strategy.

Cheryl Burke Jarvis (1998) conducted research on the ongoing issue of the rise in the

popularity of E commerce and the Internet and how the retail marketer for his benefit

could use this medium as a tool. On analysing the research made on this issue it was

observed that such innovations like the internet and E commerce can be effectively

utilised to enhance common management activities like employee training, inventory

management, delivery systems, market research and customer relationship development,

in the western nations. The popularity of internet is prevalent in the Indian subcontinent

as well. Though online shopping is still not that common and trusted by the ever

suspicious Indian consumers, it is an area which is holding the attention of retailers

across the country. Pantaloons, has also not lagged behind in this respect and has

included E-tailing or online retailing in its agenda for future expansion and realisation of

its dream. In order to successfully implement this strategy the firm first needs to be aware

of who are their customers. It is indispensable to be fluent with the personal

characteristics of the potential online shoppers so as to successfully enhance their

shopping experience. Care should be taken to construct search systems that are quick and

do not cause restlessness and irritation to the online shopper. If the search process is long

and tedious, the shopper loses patience. It should be ensured that the first experience of

an online shopper is satisfactory, or else he will never indulge in the same again. The

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online shopping systems can also be used to procure invaluable information from the

users in order to produce merchandise in conjunction with their needs.

But at the same time it should be ensured that the firm does not lose its customers to the

lure of E shopping. Thus care to be taken to enhance the in-store experience. Pantaloon

Stores are managed by professionals and state-of-the-art technology is used to run the

operations across the country. Baan ERP Systems and Category Management are all

functional and the entire operations are on line with the head office located at Mumbai.

In case of Pantaloon, it has come up with some sort of implementation of category

management principle. Pantaloon has four categories - Men's formal, Men's casual, Men's

Knitwear & Ladies & Kids wear. Each category manager operates like a CEO of his

category and is given a quantum of showroom space, and his objective is to maximize

contribution after meeting the variable cost and fixed cost (including rental cost) for the

space under his management, category manager with the help of 6 to 7 executives pores

over the sales data of each of the stores and tries to figure out the trend of sales. On the

basis of this extensive analysis, he draws out the plan of procurement and negotiates with

various brands (Say, color plus, Levi's, Lee, etc.) as to how much space and at how much

cost such rental shelf space is available to them.

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Fig: The process of Category Management

Source: Company

Pantaloons has always patronised the use of design management in all spheres of its

activities, be it product design, branding, communication, retail space and so on. Using

design, all the spheres of the supply chain can be integrated and the entire process can be

enhanced.

Let us now concentrate on the discussion of retail internationalisation in the context of

our research. Retail internationalisation is the phenomenon of a retail organisation

spreading its wings over various other markets that lie across the borders of their own

nation. Growth related motives, that is, more sales and profits, venturing into various

untapped markets which promised higher growth rates, and when the domestic markets

are not enough to meet growth related goals are cited to be some of the causes that

motivate retail internationalisation. In an interview with the Managing Director it was

revealed that the Pantaloon group do not foster any dreams of expand on a global level as

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none of the business formats developed by them will be successful in a matured

economy. Since they have mastered the difficult task of understanding the Indian

consumers, in spite of their heterogeneity they intend to reign supreme in this country.

By trying to capture the maximum amount of the consumer’s wallet the retail firm aims

to counter attack those firms which are expanding internationally from western countries.

The largest retail firm in India is facing the global competitors by either entering into a

joint venture with them and turning them into allies, for instance, Marks and Spencer,

Body shop, Guess jeans, Etam, Starbucks. The retail group is adding foreign brands to its

kitty on a daily basis. Williams’ (1992) theory can be mentioned in this respect.

While we are on the topic of retail internationalisation, Salmon and Torjdman’s

limitations cited by Williams (1992) may be taken into consideration. He pointed out that

hostility in the foreign market, prohibitive restrictions in the economy of the foreign

market towards entry of foreign retailers may inhibit a firm from expanding

internationally. This is being seen in the case of international firms who are eagerly

waiting to enter India. The international firms must make sure to properly research the

Indian market before entering, especially making themselves familiar with the culture and

tastes and preference of the consumers. Due to the heterogeneity of the consumers, they

may have to revise their working techniques that they had been successfully

implementing across nations.

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While discussing the interest of global players in the emerging Indian market, we must

mention Anderson’s article on ‘retail pull’. He elucidated the importance of economic

growth of the underdeveloped nations expressing concern on the ‘wide economic and

social disparities existing among the nations of the world’. The growth of the retail sector

in these underdeveloped countries with the help of large successful foreign retailers was

what the medicine he prescribed to cure the developing nations. This concept explains

how retail growth can be achieved in underdeveloped markets through entry of foreign

retail investors. From the point of view of the foreign retail organisation, the immense

potential of the untapped markets in these underdeveloped nations attracts them to make

such investment. The retail expert cautioned the indigenous countries to protect their

economy by making the foreign retailer instigate growth in the economy through linkage

effects. The same is taking place in Indian retail industry today. The foreign retails are

eager to establish themselves promising to improve the Indian economy but domestic

retailers like Pantaloon are suspicious of their motives and are asking the government not

to relax the rules relating to foreign direct investment in the country.

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Chapter 5: CONCLUSION

The conclusion of the study is that we were successfully able to analyse different models

related to the growth of a retail firm. Studying and analysing these models gave us a

proper insight into how the retail firms’ growth strategy function. These models and

concepts have also provided a clear picture of the role of marketing in the sphere of retail.

It is clear from these studies that marketing is an indispensable part of retail. In order to

successfully conduct retail, one has to imbibe marketing elements in the growth plan such

as segmentation, communication, relationship marketing, customer loyalty and so on.

These concepts have been discussed at length and properly comprehended in this study.

The next part of the study presents the Indian retailing scenario, describing its major

players, reasons for its underdevelopment, and factors that are driving its growth now.

The study then contains a look at the growth of pantaloon retail over the years and a

summary of its strengths, weaknesses, opportunities and threats.

Finally, the academic research is linked with the case study presented in order to find

answers to the research question. The discussion revealed that most of the theories and

concepts penned by academic experts in western countries hold true for the Indian

example as well. In fact, the growth pattern of pantaloon over the years has matched

many of these theories. The researched shed light on what strategies should the retail

conglomerate adopt in order to realise its dream of :

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‘Providing Everything, Everywhere, Every time to every Indian customer in the most

profitable manner’ (source: company).

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