SCOPE OF THE RETAIL SECTOR

Retail is clearly the sector that is poised to show the highest growth in the next five years. The sector is set for a revolution, as both the present players and new entrants are gearing up to explore the market. This sector contributes 10% of India's GDP and the current growth rate is 8.5%. The present size of the organized retailing sector is approximately 3% and is expected to grow to 25-30% by the year 2010. There are about 300 new malls, 1500 supermarkets and 325 departmental stores currently under construction. Many players are coming up with huge investments, due to which the present 12 million mom-and-pop shops and kirana stores fear losing their business. Most predictions say that the sector might reach to US$ 400-600 billion by the year 2010. Global retail giants such as Wal-Mart, Tesco, Germany's Metro AG and many others are ready to enter the retail markets. The rising demand of branded products and increase in purchasing power have lured these companies to enter the market. Retail Landscape Modern retail development in India is focused on the following cities: West

Mumbai Pune Ahmedabad North

Delhi and the National Capital Region South

Chennai Banglore Hyderabad

East

Kolkata Leading Indian Retailers Bata India Ltd, Big Bazaar, Crossword, Ebony Retail Holdings Ltd., Food Bazaar, Globus Stores Pvt. Ltd., Liberty shoes Ltd., Music World Entertainment Ltd., Pantaloon Retail India Ltd., Shoppers Stop, Subhiksha, Titan Industries, Trent and the new entrants penetrating the market soon will include Reliance Retail Ltd, Wal-Mart Stores, Carrefour, Tesco, Boots Group, etc. Current Scenario A glimpse of the International Retail

One of the world's largest industries exceeding US$ 9 trillion 47 global fortune companies & 25 of Asia's top 200 companies are retailers Dominated by developed countries US, EU & Japan constitute 80% of world retail sales. Biggest player in India is Pantaloon Retail India Limited.

Percentage of Organized Retail USA - 85% Taiwan - 81% Malaysia - 55% Thailand - 40% Brazil - 36% Indonesia - 30% Poland - 20% China - 20% India - 3% Key Trends The existing players like Big Bazaar, Shoppers' Stop, Piramyd are expanding to smaller

towns and cities. Many other business houses are planning to enter the retail sector either on their own or through partnerships. New entrants like Reliance Retail Ltd and Wal-Mart are going to enter the market soon. Even rural areas will provide a huge opportunity to be explored. Estimates and Predictions

The industry is estimated to be more than US$ 400 billion by a study of McKinsey. The Economist Intelligence Unit (EIU) estimates the retail market in India to increase to US$608.9 billion in 2009 from US$394 billion in2005. A KPMG report says that the organized retail would grow at a higher rate than GDP in the next five years. The retail sector would generate employment for more than 2.5 million people by the year 2010, says an analysis by Ma Foi Management Consultants Ltd. Benefits of FDI in Retail Sector

Higher competition would lead to higher quality in products and services. Better lifestyle as better products would be introduced. Exports would increase due to greater sourcing of major players. Investment in whole supply chain would increase. Technology would be upgraded in terms of logistics, production, and distribution channels. The markets of the sector would flourish and develop. Employment would increase and skills & manpower will develop. A strong retailing sector would promote tourism. Economies of scale would help lower consumer prices and increase the purchasing power of the consumer. In the long term it will be beneficial in the up-gradation of agriculture and small scale & medium scale industries.

Indian Consumerism The Indian consumer behaviour is rapidly changing with a shift in new generation's preference towards luxury commodities Retail Space: A Scope for Real Estate Sector

With new boom in the retail industry, the country has identified new scope for real estate development. The already revolutionizing urbanization and growing demand for finished products has necessitated development of new space for retail outlets.

THEORIES OF RETAIL DEVELOPMENT

Specialty Stores, malls & Other Formats: As the needs the consumers grew and changed, one saw the emergence of commodity specialized mass merchandisers in the 1970s. The seventies were also witness to the use of technology entering retail sector with the introduction of the barcode. Specialty chains developed in the 80s as did the large shopping malls. Shopping malls, a late 20th century development were created to provide for the consumers need in single, self contained shopping area. Although they were first created for the convenience of suburban populations, they are now found in many main city thoroughfares. A large branch of a well known retail chain usually serves as a malls retail flagship, which is the primary attraction for customers. In Asian countries, many malls house swimming pools, arcades and amusement parks. Hong Kongs City Plaza shopping mall includes one of the territorys two ice rinks. The rise of the Web: The world of retail changed yet again, when in 1995, Amazon.com opened its doors to a worldwide market on the web. With the growth of the worldwide web, both retailers and consumers can find suppliers and products from anywhere in the world. Thus, the evolution of retail formats worldwide has been largely influenced by a constantly hanging social and economic landscape. One of the main reasons for new formats emerging is the consumer himself. Todays consumer when compared to the consumer of the earliest generation is definitely more demanding and is focused on what he wants. Consumer demand is the prime reason for the emergence of various formats. The retailer on the other hand, has been influenced by factors like the availability of real estate and the increase in its prices. He is faced with the challenge of adding on new services and the need for differentiation. This has led to specialization

and the emergence of specialists. Supply chain complexities and the increasing pressure on margins have also forced retailers to look at new formats. Retail development can be looked at from the theoretical perspective. No single theory can be universally applicable or acceptable. The application of each theory varies from market to market, depending on the level of maturity and the socio-economic conditions in that market. The theories developed to explain the process of retail development revolve around the importance of competitive pressure, the investments in organizational capabilities and the creation of a sustainable competitive advantage .this requires the implementation of strategic panning by retail organizations. Growth in retail is a result of understanding market signals and responding to the opportunities that arise in a dynamic manner. Theories of retail of retail development can broadly be classified as: 1) Environmental where a change in retail is attributed to the change in the environment in which the retailers operate. 2) Cyclical where change follows a pattern ad phases can have definite identifiable attributes associated with them. 3) Conflictual the competition or conflict between two opposite type of retailers leads to a new format being developed.

Environmental Theory: Darwins theory of natural selection has been popularized by the phrase survival of the fittest. Retail institutions are economic entities and retailers confront an environment, which is made up of customers, competitors and changing technology. This environment can alter the profitability of a single retail store as well as of clusters and centers. The environment that a retailer competes in is sufficiently robust to squash any retail form that does not adjust. Thus, the birth, success or decline of different forms of retail enterprise is many a time attributed to the business environment. For example the decline of department stores in the western markets is attributed to the general inability of those retailers to react quickly and positively to environmental change. Those retail institutions which are keenly aware of their operating environment and which react without delay, again from the changes. Thus, following the Darwinian approach of survival of the fittest, those retailers that successfully adapt technological, economic, demographic and legal changes are the ones that are most likely to grow and prosper. The ability to adapt to change,

successfully,

is

at

the

core

of

this

theory.

Cyclic Theory : The most well known theory of retail evolution is The Wheel of Retailing theory. This theory helps us understand retail changes. This theory suggests that retail innovators often first appear as low price operators with a low cost structure and low profit margin requirements, offering some real advantages such as specific merchandise which enables them to take customers away from more established competitors. As they prosper, they develop their business, offering a greater range or acquiring more expensive facilities, but this can mean that they lose the focus that was so important when they entered the market. Such trading up occurs as the retailer becomes established in his own right. This in turn, leaves room for others to enter and repeat the process. They then become vulnerable to new discounters and lower cost structures that take their place along the wheel. Scrambled merchandising occurs as the retailer adds goods and services that are unrelated to each other and the firms original business to increase overall sales and profit margins. This is termed as the wheel of retailing .This is depicted in, The Wheel of Retailing Vulnerability phase >> Mature retailer Top Heavy Conservative Declining ROI >> Entry Phase >> Innovative retailer: Low status and price Minimum service Poor facilities Limited product offering Traditional retailers: Elaborate facilities Higher rent More locations Higher prices Extended product offerings The theory of the wheel of retailing can be understood by taking the example of department stores, which started as low cost competitors to the small retailers; they developed and prospered; then they were severely undercut by supermarkets and discount warehouses.

This theory does not explain the development of retail in all markets. In less developed markets, introduction may not necessarily occur at a low price here introduction may occur at a high price. Hollander was a key observer of retail evolution and he used the analogy of an orchestra comprised exclusively of accordion players to describe the dynamically shifting retail structure. This so called accordion effect describes how general stores moved to specialize, but the widened their range of merchandise again as new classes of products were added. Hollander suggested that the players either have open accordions representing general retailers with broad product ranges or closed accordions thus indicating a narrowing of the range, focusing on specific merchandise. He suggested that at any point in time, one type of retailer would outnumber the other, but that the situation would continually change through the arrival and departure of different stores. This analogy illustrates the complexity of the retail scene, and the way different attitudes to successful retailing will come in and go out of fashion at different times. The Accordion theory and the Wheel of retailing are known as the cyclical theories.

Conflict Theory : Conflict always exists between operators of similar formats or within braid retail categories. It is believed that retail innovation does not necessarily reduce the number of formats available to the consumer, but leads to the development of more formats. Retailing thus evolves through a dialectic process, i.e. the blending of two opposites to create a new format. This can be applied to developments in retailing as follows: 1) Thesis: Individual retailers as corner shops across the country 2) Antithesis: A position opposed to the thesis develops over a period of time. These are the department stores. The antithesis is a challenge to the thesis. 3) Synthesis: There is a blending of the thesis and antithesis. The result is a position between the thesis and antithesis. Supermarkets and hypermarkets thrive. This synthesis becomes the thesis for the next round of evolution. Theory of retail Conflict: Discount store (Antithesis) >> Discount department store Department store (Thesis) >> Discount

department

store

ADVANTAGES & DISADVANTAGES OF VERTICAL MARKETING SYSTEMS

A vertical marketing system is a contained business unit where the manufacturer, distributor and retailer work simultaneously to sell products to the end consumer. The opposite of a vertical marketing system would be one in which the three elements of a channel work independently to achieve the goal of moving product. A vertical marketing system can seem to be very effective, but there are advantages and disadvantages to understand before signing a vertical marketing agreement. Efficient Marketing Having control of the entire marketing process from manufacturing to end user sales allows a company to analyze the process, find problems and resolve those issues to become more efficient. Customer feedback on product issues can find its way back to the corporate marketing team at the manufacturing facility as opposed to being stopped by an independent retail outlet. Combining Resources A vertical marketing system allows the combined entity to benefit from the pooling of resources. For example, a vertical marketing system ships products from the manufacturer to distribution and then from distribution to the retail outlets. In a standard marketing arrangement, this would be the activity of three separate organizations. In a vertical marketing system, the shipping costs can be combined and a lower overall shipping agreement can be negotiated with a shipping provider. Idea Limitation One of the advantages of maintaining separate manufacturing, distribution and retail companies is the variety of companies available to work with. Your company can benefit from the many different approaches other organizations may suggest when it comes to marketing your product. In a vertical marketing system, there are no outside ideas and that can limit the ability of the organization to generate unique and effective solutions. Loss of Focus One of the things that helps a manufacturer to focus on improving manufacturing methods is that it can turn the distribution of the product over to another company. A vertical marketing system requires the involvement of all of the member organizations, and that can bring manufacturers into strategy meetings on distribution and retailing. It

can overwhelm a small business and negate the benefits of being able to outsource distribution and retail services. ----------------------------------------------------------------------------------------Vertical marketing is a system where a single firm owns or controls all factors of distribution. A single conglomerate controls the retailers, distributors, wholesalers and customer service systems. This is meant to coordinate and integrate all elements of sales and distribution under one roof. The final purpose is to increase efficiency and boost profits. Oligopoly All integrationist schemes, whether vertical or horizontal, whether dealing with distribution or production, all share the same problem of oligopoly and oligarchy. This refers to a state of economic affairs where only a few firms control -- and hence rule -an entire market. The disadvantages here are also always the same -- poor quality, lack of innovation, lack of initiative and higher prices. The less competition in a field, the higher the average price. This is because there is little pressure from competitors to keep the prices low so as to attract customers. Coordination Vertical marketing means that retailers, transport firms, wholesalers, distributors and the factory itself all collude -- they are all integrated within a single policy, if not a single company. If these were all separate firms seeking profit, the incentives to produce and coordinate with complementary firms is high. If they are brought under one roof -- either through ownership or control -- then the firm itself must constantly coordinate their activities. This kind of coordination is not a market, but a bureaucratic, form of control. Markets stress efficiency and innovation, while bureaucracy stresses standardization, coercion and conformity. Service Vertical marketing means that, in theory, the distribution side of the company's life has fewer moving parts. This might increase efficiency in the use of resources, but it also reduces the leverage that customers can use against a firm. Integration in this case might diminish the level of customer service. This is because the market mechanism is no longer present as the distribution firms are absorbed into a conglomerate. Dissatisfied customers in the past were able to go to the separate firms involved in order to increase pressure on the company to change its practices. Under vertical marketing, there is now only one firm, quite possibly even more isolated from its customers due to its massive size. In other words, if customer service falls off, there are fewer places to which customers can complain.

Flexibility Smaller firms specializing in retail or transport can move quickly to react to market changes over time. A larger firm controlling its own distribution and retail might have less initiative and less ability to change rapidly. If the distribution networks are all now under a single corporate bureaucracy, then expecting rapid and radical changes if the market quickly changes -- the introduction of new fads, for example -- is unrealistic. The disadvantages of integrated marketing centers around the lessening of market discipline on those specific sectors of the firm.

ADVANTAGES AND DISADVANTAGES OF CO-OPERATIVE STORES.

The societies started to help lower and middle class people and protect these sections from the clutches of profit-hungry businessman are called consumers co-operative stores. A consumer's co-operative society is a combination of persons whose aim is to economize by buying in common and retain their profits by selling in common. According to M.C. Sukla, "A consumer co-operative store in an economic enterprise set by the consumers for the distribution of fundamental consumption goods, primarily among the shareholders to the subscriber consumers who are called members of such organization and who have an equal voice in the control of the organization. Features The followings are some of the essential features of a consumer's co-operative store: i. There is no restriction on membership of a consumer co-operative store as any adult person can become a member of a co-operative. ii. The members of the consumer co-operative store and distribute capital in the form of share. A member can purchase shares of a value of Rs. 1000 only. Beyond this, shares are not issued to members. iii. The surplus of a store is distributed among the members in the form of dividend. The dividend is paid in proportion to purchases made by the members. iv. It adopts the principles of one man one vote. A man is not allowed vote by proxy system.

v. The trading of co-operative stores is made on the basis of cash. vi. A sale can be made to non-members on the basis of market rate. vii. It makes bulk purchases directly from the producers and sell these goods to its members on retail basis. Advantages A consumer's co-operative store has the following advantages: i. It facilitates its members in getting pure and unadulterated goods at a competitive price. ii. It develops a state of moral booster to the poor people who develop greater confidence among themselves. iii. As the societies are purchasing goods in bulk quantities from the producers, these are in a better position to supply these goods at a competitive price to its members. iv. It improves the purchasing power of the members since dividend is paid on the basis of purchases made. v. It encourages people to save. i. The purchases of the store are made in large quantities which ensures more trade discounts in purchase. The presence of more trade discounts facilitate purchase at a lower price. ii. It can supply goods to the consumers at lower price because it has effected economical purchase by availing more trade discounts. iii. It incurs less expenditure on advertisement and thereby helps in the reduction of selling price of the product. iv. The consumers are protected against unfair trade because the stores purchase quality products directly from the producers. v. The formation of co-operative stores develops the spirit of co-operation and self-help. By this, it has a high social and education value. vi. It develops managerial ability of the members because they are given a chance in the management. Disadvantages

Co-operative stores are not free from disadvantages. The disadvantages of a cooperative store are: i. The stores are established to cater the needs of small medium income group people. ii. Most of the stores are uneconomical size because of inadequate finance raised from its members. iii. The stores do not exercise efficiency in management because these are managed by amateurs who are not professional managers. iv. The inadequate finance of the store does not allow to go for large quantity purchase. v. It lacks loyalty of all the members and as such these are managed by few members. The progress of the store is hampered when all the members are not loyal to the operation of the store. vi. It lacks proper sales promotion drives by the salesman.