584 5962 Dhiraj Choudhary--MTC WAC1B

8/14/2019 584 5962 Dhiraj Choudhary--MTC WAC1B

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GLOBALIZATION:

REVOLUTIONIZING RETAIL INDUSTRY IN

INDIA

An Article

In partial fulfillment of the

requirements of the course of

Written Analysis and Communication-I

Submitted to

Prof. Rohini Patel

ByAnupama Jangid

Dhiraj Kumar ChoudharySection B

on20th of Jan 2007

`


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GLOBALIZATION: REVOLUTIONIZING RETAIL INDUSTRY IN INDIA

Abstract

The president of MTL had diversified it with the objective of future growth

potential and making it less vulnerable to any economic fluctuation. The earlier

president was handling all the businesses himself and so a second line of

leadership had not been groomed. The untimely death of the president led to a

situation of leadership vacuum throughout the businesses. The situation is further

complicated by the fact that most of the acquired businesses are actually not

doing much business in terms of sales and profits. So it is advisable to divest

some of the businesses and to integrate and establish the proper top management

within the organization.

No of Words = 109

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Table of Contents:

Abstract ....................................................................................................................2No of Words = 109 .............................................................................................. 2

Table of Contents: ................................................................................................... 3

GLOBALIZATION:

REVOLUTIONIZING RETAIL INDUSTRY IN

INDIA

Introduction:-

Retailing is defined as an activity that ensures that customers

derive maximum value from the buying process. It involves activities and steps

needed to place the merchandise made elsewhere into the hands of customers or

to provide services to the customers.1 It organises the availability on large scale

and supply them to consumers on a relatively small scale. In the process itprovides the accessibility of location, convenience of timing, convenience of size,

information and lifestyle support. Retailing has always been an integral part of

economic development.

Retail Scenario in India:-

1

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The Indian retail industry is currently estimated to be a US$

200 billion industry and organised retailing comprises of 3 percent (US$6.4

Billion) of the retail industry. (Exhibit:-1) With a growth exceeding 20 percent

per annum over the last 5 years, organised retailing is projected to reach US$ 23

Billion by 2010.2 India is the last large Asian economy to liberalize its retail

sector. Organised retailing in India has a huge scope because of the vast market

and the growing consciousness of the consumer about product quality and

services. The greatest advantage is that it is the least saturated among all the

global markets which implies lower barriers for global players. Whether the

changes taking place in the Indian retail landscape represent evolution or

revolution is a matter for conjecture. However, nobody can doubt that a dramatic

transformation is under way. In its nature, the Indian retail market is in sharp

contrast to the global situation. Most of these outlets are basic mom-and-pop

stores with very basic offerings, fixed prices, and no ambience.

Retail sales in India amounted to about Rs.7400 billion in

2002, expanded at an average annual rate of 7% during 1999-2002.4 (Exhibit-

2)4 .The proportion of retail sales to GDP increased from 42.8% in 1996 to 45%

in 2000. The total number of retail outlets is increasing by 7% per year.5 A recent

estimate suggests there are more than 13 million operational retail outlets in

India. Ninety six percent of these outlets are small with average area of less than

500 square feet.6 India's per capita retailing space is the lowest in the world. 7

Sales from large-format stores are to expand at growth rates ranging from 24% to

49% per year during 2003-2008.8 As the corporates the Piramals, the Tatas, the

Rahejas, ITC, S.Kumars, RPG Enterprises, and mega retailers- Crosswords,

Shoppers Stop, and Pantaloons race to revolutionize the retailing sector, retail as

an industry in India is coming alive.(Exihibit:-3)4

Exihibit:-2

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Trend of Retail Sales and Growth

0

5000

10000

15000

20000

25000

30000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0

2

4

6

8

10

12

14

16

18

20

Retail Sales Rs.'000 Billion % Growth

The factors responsible for the development of retail industry in India

in context with Globalization:-

Liberalization of the Indian economy which has led to the opening up of

the market for consumer goods has helped the MNC brands like Kellogs,Unilever, Nestle, etc. to make significant inroads into the vast consumer

market by offering a wide range of choices to the Indian consumers.

The National Council of Applied Economic Research classified

approximately 50% of the Indian population as low income in 1994-95;

this is expected to decline to 17.8% by 2007. Traders have benefited from

an economy which gave rise to a growing number of middle-class with

higher levels of disposable income and accelerating convergence of

consumer tastes.9

Reach of satellite T.V. channels is helping in creating awareness about

global products for local markets. About 47% of Indias population is

under the age of 20; and this will increase to 55% by 2015.10 This young

population, which is technology-savvy, watch more than 50 TV satellite

channels, and display the highest propensity to spend, will immensely

contribute to the growth of the retail sector in the country.

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Shift in consumer demand to foreign brands like McDonalds, Sony,

Panasonic, etc.

Shift in consumer buying behavior and expectations.

Very few significant competitors due to which new entrants can get theearly mover advantages.

Operational competitive advantage through strong processes and

infrastructure.

Potential for high market capitalization.

Exihibit:-423

What factors make India conducive to cost-effective marketing

0

10

20

30

40

50

60

70

80

90

100

Sizeofthe

market

Developed

media

Awareness

ofbrands

Quality

conscious

consumers

Profit

Potentialin

best

market

segments

Premium

Different Forms of Retailing:-11

Hypermarkets (>5000 sq. ft.)

Large supermarkets (3,500 - 5,000 sq. ft)

Mini supermarkets (1,000 - 2,000 sq. ft)

Convenience store (7,50 - 1,000 sq. ft)

Discount/shopping list grocery (


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Component of Indian Retail Sector:-12 (Exhibit:-5)

A) FOOD RETAILERS

Food retail contributes 62.7% in the total retail sales. It has increased

substantially by 85% to Rs. 7,039 billion in current terms during last 5 years. 13

Food sales accounted for about 63% of supermarket sales and 60% of

convenience stores. Traditional types of retailers, who operate small single-outlet

businesses mainly using family labor, dominate this sector. In comparison, super

markets account for a small proportion of food sales in India. However, now a

days super markets are becoming more attractive due to higher standards of

hygiene and attractive ambience.

B) CLOTHING & FOOTWEAR

Global-brands such as Marks & Spencer, Lacoste, and Benetton have established

their retail presence in the country through the franchising route. In fact, a large

number of Indian brands have also adopted the franchising route for expansion

due to the relatively lower level of investments involved.

C) DURABLE GOODS

The Indian durable goods sector has seen the entry of a large number of foreign

companies (LG, Hyundai, Samsung etc.) during the post liberalization period.

Intense competition among companies to sell their brands provided a strong

impetus to growth for retailers doing business in this sector.

D) CATERING

Home-grown as well as international restaurant chains present in both high street

locations and malls represent the organized Food and Beverage sector. Most of

the multinational foodservice chains like McDonald's and Pizza-Hut have adopted

the franchising route to set-up their Indian operations and expand their market

presence. Coffee retailing has emerged as a successful example in this segment

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known as malls. There is an increased demand for quality retail space from a

varied segment of large-format retailers and brands, which include food and

apparel chains, consumer durables and multiplex operators. This has attracted

Global real-estate giants like DLF to establish malls and retail stores. As a result,

from just 3 malls in 2000, India is all set to have over 300 malls by 2007.18

(Exihibit:-6)

By 2007, total mall space in cities of Mumbai, Bangalore,

Hyderabad, Chennai, Kolkata, and National Capital Region is expected to

increase to over 26.1 million sq. ft.19 Smaller cities like Pune, Ahmedabad,

Ludhiana, Jaipur, Chandigarh, etc. are also expected to see a formidable growth

of malls in the near future.(Exhibit:-7)

Challenges:-

Despite the presence of the basic ingredients required for

growth of retail industry in India, it still faces substantial hurdles that would

retard and inhibit its growth in the future. One of the key impediments is the lack

of FDI status. This has largely limited the growth of retailing and has also

constrained access to world-class retail practices. Multiplicity and complexity of

taxes, lack of proper infrastructure and relatively high cost of real estate are the

other impediments to the growth of retailing.

Exhibit:-84

Importance of Key Concerns for Consumer Companies

0

10

20

30

40

50

60

70

80

90

CostOf

RetailSpace

FDIcontrols

Unorganised

sector

competition

Storageof

urbanretail

space

Partnership

laws

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Exhibit:-94

Consumer Companies cite Key distribution Concerns

0

10

20

30

40

50

60

70

Large

geographical

area

Infrastructure

constraints

Distribution

costs

Fragmented

market

Lackof

national

distribution

networks

Lackof

distribution

hubs

Discussion Regarding FDI:-

Much has changed since the government of Rajeev Gandhi

began the long, slow and painful process of opening up the economy. Indias

consumer markets started to look a little more like world markets, as global

brands became increasingly recognized and the share of organized retail in the

market began to grow. The Indian Retail Council was formed in 2000, under the

auspices of the Confederation of Indian Industry.20 This Council is expected to

enable the industry to lobby for unified tax laws, rational octroi, labor laws and

tenant laws.

Given the attractiveness of the Indian retail sector, foreign

retailers like Wal-Mart, Carrefour SA, and Tesco Plc. were keen to enter this

growing market, despite the Indian retail sector being closed to foreign direct

investment. 21 However, global companies with manufacturing bases in India, are

allowed to retail their products manufactured in India. Foreign retailers can only

enter the retailing environment through franchising agreements. In February

2006, the Indian Government had announced its decision to allow FDI of up to

51% in single brand retailing. However, 100% FDI is permitted in wholesale

trading.

There are apprehensions in certain quarters that FDI

in retailing would lead to unfair competition and ultimately result in large scale

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continues to get strongly integrated with the world economy riding the waves of

globalization, the retail sector is bound to take big leaps in the years to come.

.

Exhibits:-

Exhibit:-124

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Exhibit:-323

Selected Indian Retailers

Companyand itsretail

presence

No. ofoutlets

Retailspace

(Sq. ft.)Format

Productbasket

Expectedturnover

2001-2002(Rs. Cr.)

Investment made so far andexpansion plans Increase in

retail presencespace/cities/stores/investment

/turnover etc.

BataNationwide

1500 +App.

10,00,000Brand chain

Shoes andAccessories

800 NA

KodakNationwide

890+ 5,00,000 Imaging chain

PhotographyProcessing

andPeripherals

700 Plans 200 stores every year

MarginFree Kerala

214 2,50,000Discount super

marketsGroceries 550 NA

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LibertyNationwide

360 2,00,000 Brand chainShoes and

Accessories500

(domestic)

Total turnover Rs. 600 cr.Planning 10 company ownedRevolution Stores with an

investment of Rs. 25 cr.

RPG RetailFood

World,MusicWorld,

Health &Glow,

Super Store& Grant

110 4,93,000

Supermarket/specialty stores, Hyper

market

Food, Music,Health and

Beauty,Groceries, etc

460

Investment so far Rs. 132 cr. Rs.60 cr. Investment every year toadd 30 outlets of Music World,

more Health and Glow outlets 25food world stores and 4 grand

hypermarkets

Titan Ind. 314 2,30,000 Brand ChainWatches,

clocks andJewellery

446(Independent

stores)

Total company turnover ofRs.709 cr. More than 375 stores

by March 2002.

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RaymondNationwide

263 4,00,000Speciality

stores

Fabrics,Apparels,

accessories400

Planning 100 exclusive storesfor its apparels brands, Park

Avenue & Parx. More stores inDubai, Bangkok and Sharjah.

ShoppersStop Ltd.

39338 4,09,000Dept.

Stores/Bookstores

ClothingAccessories,Home fashion,

Books

28518 Shoppers Stop with atargeted turnover of Rs. 500 cr

by 2004. And 6 more Crosswordstores.

Nilgiris (12Cities)

26 89,000 Super market

Groceries,dairy products

andconfectioneries

230 Investment so far Rs. 35 cr

Subhiksha

112 1,25,000Discount

supermarket

Food,provisions and

pharma200 NA

Tamil Nadu

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PantaloonRetail,

Pantaloonstores,

franchisees, Big

Bazaar in 9

cities

13+34+3 3,38,000Dept.

stores/hypermarket

Clothing,utilities andgroceries

175 Investment so far Rs. 100 cr

Vivekgroup,

Tamilnadu,Karnataka

36 2,00,000 Super markets

Consumerelectronics and

homeappliances

173 Investment up to Rs. 35 cr

Apollo 90 NA Brand PharmaChain Healthcare/Pharma 120 250 outlets in next 3 yrs.

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Exhibit:-513

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Exihibit:-621

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Exhibit-724

20

Operational Malls/Shopping Centres as on 31 August

2005

Built-up Area in

sq.ft

No of

Malls

Delhi - NCR 6,533,374 29

Mumbai, Navi Mumbai

& Thane 6,575,000 27

Kolkotta 741,660 3

Chennai 1,350,000 2

Bangalore 1,260,000 5

Pune 1,230,000 5Hyderabad 695,000 5

Others 3,179,830 20

Total All India 21,564,864 96


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Exhibit:-10

Sr.

No. Factors Description Implications

1

Barriers toFDI

FDI not permitted inpure retailingFranchiseearrangement allowed

Absence of global playersLimited exposure to best

practices

2Lack ofIndustryStatus

Government doesnot recognize theindustry

Restricted availability offinance Restricts growthand scaling up

3

StructuralImpediments

Lack of urbanizationPoor transportation

infrastructureConsumer habit of

buying fresh foodsAdministered

pricing

Lack of awareness ofIndian consumers

Restricted retail growthGrowth of small, one-storeformats, with unmatchablecost structure Wastage ofalmost 20%-25% of farm

produce

4 High Cost ofReal Estate

Pro-tenant rent lawsNon-availability ofgovernment land,zoning restrictionsLack of clear

Difficult to find good realestate in terms of locationand size High land costowing to constrainedsupply Disorganized nature

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ownership titles,high stamp duty(10%)

of transactions

5

Supply ChainBottlenecks

Several segmentslike food and apparel

reserved for SSIsDistribution,

logistics constraints restrictions of

purchase andmovement of foodgrains, absence of

cold chaininfrastructure Long

intermediation chain

Limited product rangeMakes scaling up difficultHigh cost and complexityof sourcing & planningLack of value addition andincrease in costs by almost15%

6

ComplexTaxationSystem

Differential sales taxrates across statesMulti-point octroi

Sales tax avoidanceby smaller stores

Added cost and complexityof distribution Costadvantage for smallerstores through tax evasion

7

MultipleLegislations

Stringent labor lawsgoverning hours of

work, minimumwage payments

Multiplelicenses/clearancesrequired

Limits flexibility inoperations Irritant value inestablishing chainoperations; adds to overall

costs

8

CustomerPreferences

Local consumptionhabits Need forvariety Cultural

issues

Leads to productproliferation Need to stocklarger number of SKUs atstore level Increasescomplexity in sourcing &

planning Increases the costof store management

9

Availability

of Talent

Highly educated

class does notconsider retailing a

profession of choiceLack of proper

training

Lack of trained personnel

Higher trial and error inmanaging retail operationsIncrease in personnel costs

10

ManufacturersBacklash

No increase inmargins

Manufacturers refuse todis-intermediate and passon intermediary margins toretailers

References:-

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. Dunne P M, Luch R F and Griffith D A (2002), Retailing, Thomson SouthWestern, 4th Edition, p. 7.

2. Industrial Sector Retail Overview (n.d.). Retrieved Jan 17, 2007, from

http://www.indiainbusiness.nic.in /india-profile/ser-retail.htm3. Retail Scenario in India (CII, 2006, p.5) Retrived on Jan 17, 2007 from

http://www.ciionline.org/industryMonitor/index.html4. Consumer Markets in India the next big thing?(KPMG International 2005,

p. 5) Retrived on Jan 17, 2007 fromhttp://www.in.kpmg.com/industries/industries_cm.asp#cm3

5. Retail Scenario in India (CII, 2006, p.5) Retrived on Jan 17, 2007 fromhttp://www.ciionline.org/industryMonitor/index.html

6. Banerjee Arindam and Banerjee Bibek, Effective Retail PromotionManagement: Use of Point Of Sales Information Vikalpa, Volume 25, No.4,October-December 2000, pp 51-59

7. KSA Technopak (I) Pvt Ltd, the India operation, (n.d.). Retrived on Jan 17,2007 from

http://www.imagesretail.com/india_retail_report.htm(ksa)8. Retail Scenario in India (CII, 2006, p.4) (n.d.). Retrived on Jan 17, 2007

from http://www.ciionline.org/industryMonitor/index.html9. Retail Scenario in India (CII, 2006, p.5) Retrived on Jan 17, 2007 from

http://www.ciionline.org/industryMonitor/index.html10. Retail Scenario in India (CII, 2006, p.5) Retrived on Jan 17, 2007 from

http://www.ciionline.org/industryMonitor/index.html11. Industry Sectors Retailing overview (n.d). Retrived Jan 17, 2007 from

(http://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6 )

12. Images of India Retail Report (IIMA 2005, p. 1-26) (n.d.) Retrived Jan 16,2007 from \\192.168.240.1\Clubs\Consult\Sectoral Reports and Articles\Retail

13. Indian Retailing Part1, (Euromonitor 2005 p.8). Retrived Jan 17, 2007 fromhttp://www.gmid.euromonitor.com




17. Consumer Markets in India the next big thing? (KPMG International2005, p. 22)18. 'Retail Real Estate: Malls in India 2005'(n.d.). Retrived Jan 17, 2007 from

http://www.imagesretail.com/mall_book.htm19. 'Retail Real Estate: Malls in India 2005'(n.d.). Retrived Jan 17, 2007 from

http://www.imagesretail.com/mall_book.htm20. Indian Retailing Part1, (Euromonitor 2005 p.12). Retrived Jan 17, 2007

from http://www.gmid.euromonitor.com21.Industry Sectors- Retailing overview (n.d). Retrived Jan 17, 2007 from

http://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6.

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http://www.indiainbusiness.nic.in/http://www.ciionline.org/industryMonitor/index.htmlhttp://www.in.kpmg.com/industries/industries_cm.asp#cm3http://www.ciionline.org/industryMonitor/index.htmlhttp://www.imagesretail.com/india_retail_report.htm(ksa)http://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6http://www.gmid.euromonitor.com/http://www.imagesretail.com/mall_book.htmhttp://www.imagesretail.com/mall_book.htmhttp://www.gmid.euromonitor.com/http://www.ciionline.org/industryMonitor/index.htmlhttp://www.in.kpmg.com/industries/industries_cm.asp#cm3http://www.ciionline.org/industryMonitor/index.htmlhttp://www.imagesretail.com/india_retail_report.htm(ksa)http://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.ciionline.org/industryMonitor/index.htmlhttp://www.indiainbusiness.nic.in/india-profile/ser-retail.htm#6http://www.gmid.euromonitor.com/http://www.imagesretail.com/mall_book.htmhttp://www.imagesretail.com/mall_book.htmhttp://www.gmid.euromonitor.com/http://www.indiainbusiness.nic.in/


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22. Sue J F Evans (n.d). International Perspective on Developments inRetailing:Major Impact and Implications for India. (AT KEARNEY). RetrivedJan 17, 2007 from http://www.atkearney.com/main.taf?p=5,3,1,79

23. Sinha and Dwarika, Retail Management An Asian Perspective. ThomsonLearning, Singapore, 2005

24. Foreign direct Investment in Retail. (ICICI Bank-2005) Retrived on Jan2007 fromhttp://www.icicibank.com/pfsuser/aboutus/investorelations/pressrelease/jan25-2001.htm

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