Retailing consists of the sale of goods or merchandise for personal or household consumption either from a fixed location such

as a shopping mall or store, or from a fixed location and related subordinated services. In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells individual items or small quantities to the general public or end-user customers, usually in a shop, also called a store. Retailers are at the end of the supply chain. Marketers see retailing as part of their overall distribution strategy. TECHNOLOGY INFLUENZE IN RETAIL The other important aspect of retailing relates to technology. It is widely felt that the key differentiator between the successful and not so successful retailers is primarily in the area of technology. Simultaneously, it will be technology that will help the organised retailer score over the unorganised players, giving both cost and service advantages. Retailing is a `technology-intensive' industry. It is quoted that everyday at least 500 gigabytes of data are transmitted via satellite from the 1,200 point-of-sales counters of JC Penney to its corporate headquarters. Successful retailers today work closely with their vendors to predict consumer demand, shorten lead times, reduce inventory holding and thereby, save cost. Wal-Mart pioneered the concept of building a competitive advantage through distribution and information systems in the retailing industry. They introduced two innovative logistics techniques - cross-docking and electronic data interchange. Today, online systems link point-of-sales terminals to the main office where detailed analyses on sales by item, classification, stores or vendor are carried out online. Besides vendors, the focus of the retailing sector is to develop the link with the consumer. `Data Warehousing' is an established concept in the advanced nations. With the help of `database retailing', information on existing and potential customers is tracked. Besides knowing what was purchased and by whom, information on softer issues such as demographics and psychographics is captured. Retailing, as discussed before, is at a nascent stage in our country. Most organised players have managed to put the front ends in place, but these are relatively easy to copy. The relatively complicated information systems and underlying technologies are in the process of being established. Most grocery retailers such as FoodWorld have started tracking consumer purchases through CRM. The lifestyle retailers through their `affinity clubs' and `reward clubs' are establishing their processes. The traditional retailers will always continue to exist but organised retailers are working towards revamping their business to obtain strategic advantages at various levels - market, cost, knowledge and customer. With differentiating strategies - value for money, shopping experience, variety, quality, discounts and advanced systems and technology in the back-end, change in the equilibrium with manufacturers and a thorough understanding of the consumer behaviour, the ground is all set for the organised retailers. The bottomline could look brighter, after all! It would be important to note, however, that the retailing industry in India is still a `protected industry'. It is one of the few sectors which still has restrictions on FDI. Given the current trend in liberalisation, it will not be long before the retailing sector is also thrown open to international competition. This will see a further segregation of the international retailing brands and the domestic retailers, thereby injecting much greater dynamism into the market. That will be when the real action will begin. In the second article on retailing, we uncover a model for retailers to handle the emerging scenario. 1

ISSUES AND CHALLENGES OF RETAIL IN INDIA The organised retail sector in India has been witnessing various issues and challenges which are proving to be a hurdle for its fast-paced growth. Even though the organised retail sector is in a very nascent stage in India, it provides ample opportunities for retailers, and mitigation of a few challenges will help the sector attain higher economies of scale and growth. Elucidated below are the challenges and risks that the sector faces: Global economic slowdown Competition from the unorganised sector Retail sector has no recognition as an industry High real-estate costs Lack of basic infrastructure Supply-chain inefficiencies Challenges with respect to human resources Margin Pressure Global economic slowdown impacting consumer demand The current contraction in overall growth has not been so severe ever since the one witnessed during World War II. The sub prime-triggered crisis in the US during end of 2007 gradually spread across other parts of the world; as a the fallout of this crisis, credit availability dropped sharply in advanced economies and their GDP growth contracted incessantly during the last quarter of 2008. The financial crisis continued to trouble advanced and developing economies in spite of policymakers attempts to replenish liquidity in these markets. Many financial institutions collapsed and filed for bankruptcy, as the situation got from bad to worse. Many banks/institutions made massive write-downs following this turn of events. During 2007-10, the write-downs on global exposures are expected to be worth US$ 4 trillion while the write downs on the US-originated assets alone are likely to be worth US$ 2.7 trillion11. Such massive write-down will affect the financial system to a grave extent, as it is likely to further strain banks funding capabilities. Already these write-downs are turning into a major challenge for banks/financial institutions because of solvency issues, and deepening risk of failure of banks/ financial institutions. Failure of the US investment bank Lehman Brothers, for instance, has had an enormous impact on the overall global financial system, and has consequently shaken the confidence of banks, investors, households etc. According to IMF s World Economic Outlook (Apr 2009), the global GDP contracted by 1.8% in the first quarter of 2009 as compared with the 4.5% growth recorded during the same period in the previous year. Likewise, the advanced economies witnessed contraction in GDP growth (by 1.7%) during the last quarter of 2008 while the US, Euro area and Japan witnessed a recessionary trend12. According to IMF estimates, the world GDP will continue to contract by 2.4% during the third quarter of 2009. Going ahead, policymakers face a daunting task as they need to put back things as early as possible; according to IMF s World Economic Outlook (Apr 2009), the world economy is expected to recover gradually only in 2010 by 1.9% , by corroborating demand, with appropriate monetary and fiscal measures. The financial crisis and global economic slowdown resulted in job losses around the world, which weakened consumer demand. The unemployment rate remained high in the US during first quarter of 2009, Europe and emerging economies like Brazil; for instance, the annual unemployment rate in the US reached 5.8% in 2008 from 4.6% in 2007, which further went up to 9.4% in May 2009. In future, the rising unemployment rates in advanced economies as well as economies that are heavily exportoriented will further dampen consumer spending; as a result, the retail sectors growth will remain under threat. In the US, the retail trade sales growth (both retail and food services) contracted by 0.7% in 2008 from 3.3% growth in 2007. The downward trend in retail trade sales continued during the first six months of 2009 (Jan- June), as it went down by 9.3%13 as compared with the previous year. In EU27 2

countries, the total retail trade in volume terms continued to contract during the first five months of 2009; for instance, during May 2009, the retail trade in volume terms in EU27 contracted by 3.1% against the same period in the previous year.
Consumption declines in the advanced economies

Private consumption expenditure is an important indicator of overall economic growth. In the last couple of quarters, the decline in consumption has further affected the global economic downturn. Moreover, widespread financial crisis severely hit credit availability and household disposable income. For instance, US households lost 20% (US$ 13 trillion)14 of their net worth as a percentage of disposable income from the second quarter of 2007 to the fourth quarter of 2008. The stock prices across the world started falling during the second quarter of 2007 and continued its losses throughout 2008; the global stock markets lost between 40-60% in dollar terms that translated to a huge loss of global wealth in 2008. The personal disposable income (at current prices) in the US registered negative growth (3.9% and 2.1%) during the last two quarters of 2008, respectively. The consumer demand situation was aggravated further by reduced capital availability and consequent fall in investments. As mentioned earlier in the section, the financial crisis triggered massive layoffs globally, which pushed up the unemployment rates. Further, uncertain future market conditions raised precautionary household savings that curtailed investments and consumer demand. The investment activities in 27 high income countries out of 30 countries fell by 4.4% (at a 16.5% annualised rate) during the fourth quarter of 200815. On the other hand, in an uncertain situation like this, the household savings would go up as a precautionary measure with the global economy trying hard to rebuild in the coming months. For instance the household savings rate (not seasonally adjusted) in EU27 jumped to 12.5% during Q42008 from 8.6% in Q1-2008, while investments dipped to 9.0% from 9.9% during the same period. Competition from the unorganised sector Organised retailers face immense competition from the unorganised retailers or kirana stores (momand-pop stores) that generally cater to the customers within their neighbourhood. The unorganised retail sector constitutes over 94% of India s total retail sector and thus, poses a serious hurdle for organised retailers. If put numerically, the organised retailers are facing stiff competition from over 13 million kirana stores that offer personalised services such as direct credit to customers, free home delivery services, apart from the loyalty benefits. During the current economic slowdown, the traditional kirana stores adopted various measures to retain their customers, which directly affected organised retailers. Generally, it has been observed that customers shop impulsively and end up spending more than what they need at organised retail outlets; however, in kirana stores, they stick to their needs because of the limited variety. During a downturn, many customers may not like to spend more as is evident from the past few months trend that shoppers are increasingly switching from organised retail stores to kiranas. Retail sector yet to be recognised as an industry The retail sector is not recognised as an industry by the government even though it is the second-largest employer after agriculture. Lack of recognition as an industry affects the retail sector in the following ways: Due to the lack of established lending norms and consequent delay in financing activity, the existing and new players have lesser access to credit, which affects their growth and expansion plans The absence of a single nodal agency leads to chaos, as retailers have to oblige to multiple authorities to get clearances and for regular operations High real estate costs Even though the real estate prices have subsided recently due to the slowdown in economies and the financial crises, these prices are expected to go up again in the near future. Presently the sector faces

high stamp duties, pro-tenancy acts, the rigid Urban Land Ceiling Act and the Rent Control Act and timeconsuming legal processes, which causes delays in opening stores. Earlier on the lease or rents on properties were very high (among the highest in the world) at some prominent locations in major cities. The profitability of retail companies were affected severely because real estate costs constituted a major part of their operating expenses. Now companies are moving out from prominent malls of tier I cities and are re-negotiating the rental agreements with landlords to reduce costs. Some are even focussing on setting up shops in tier II and tier III cities. Lack of basic infrastructure Poor roads and lack of cold chain infrastructure hampers the development of food retail in India. The existing players have to invest substantial amounts of money and time in building a cold-chain network. Supply-chain inefficiencies Supply chain needs to be efficiently-managed because it has a direct impact on the company s bottomlines. Presently the Indian organised retail has an efficient supply chain but it appears efficient only when compared with the unorganised sector. On an international level the Indian organised retailers fall short of international retailers like Wal-Mart and Carrefour in terms of efficiencies in supply chain. In the following paragraphs some key challenges that the retailers face during procuring goods from suppliers to delivering the same to end-customers are discussed. Inventory management is the first challenge that retailers face at the local store level as well as at the warehouse level. Excess inventory often leads to an increase in inventory costs, and then to lower profits, so retailers like Pantaloons and Shoppers Stop have IT systems in place for inventory management. SCM-IT has helped retailers to plan their stock outs, replenish their stock on time, move stock from warehouse to stores, maintain adequate stock at a store to match consumer preferences etc. However, the retailer may still face a big challenge in terms of efficiently implementing the supply-chain software across stores and integrating it with the central warehouse, which can be a time-consuming process, requiring trained personnel. Logistics is another challenge related to the supply chain. It is imperative for any organised food and grocery retailer to establish a robust cold chain. Amul is the best example of this scenario, as it has developed a cold storage chain across India. Until and unless organised retailers like Reliance and Food Bazaar fully develop integrated-cold chains, they would continue to incur loss of considerable amount of money through wastages of perishable items while moving huge quantities from one place to another. The third challenge related to the supply chain is procurement. Big organised retailers enjoy economies of scale based on their size and expansion plans. The economical benefits of scale in procurement are achieved when procurement is made in thousands or millions of units; however, the main challenge here is to procure adequate amount of stock according to customer requirements, failing which the resultant rise in inventory can affect bottomlines. Challenges before Organized Retailing: Retailing as an industry in India has still a long way to go. Tobecome a truly flourishing industry, retailing needs to crossthe following hurdles: A u t om a t i c retail. a p p r ov al i s n o t al l o we d f o r f o r e i g n investment in

R e g u l a t i o n s r e s t r i c t i n g r e a l e s t a t e p u r c h a s e s , a n d cumbersome local laws. Taxation, which favors small retail businesses

Absence of developed supply chain and integrated IT management. 4

Lack of trained work force. Low skill level for retailing management. Intrinsic complexity of retailing rapid price changes,constant threat of product Obsolescence and low margins Challenges with respect to human resources The Indian organised retail players shell out more than 7% of sales towards personnel costs. The high HR costs are essentially the costs incurred on training employees as there is a severe scarcity for skilled labour in India. The retail industry faces attrition rates as high as 50%, which is high when compared to other sectors also. Changes in career path, employee benefits offered by competitors of similar industries, flexible and better working hours and conditions contribute to the high attrition. Shrinkage Retail shrinkage is the difference between the book value of stock and the actual stock or the unaccounted loss of retail goods. These losses include theft by employees, administrative errors, shoplifting by customers or vendor fraud. According to industry estimates, nearly 3-4% of the Indian chain s turnover is lost on account of shrinkage. The organised industry players have invested IT, CCTV and antennas to overcome the problem of shrinkage.
Challenges OF GLOBAL RETAILERS IN INDIA

Logistics infrastructure in India has always been a cause of concern for global retailers. Lukas Ruecker, who oversaw emerging market business as vice president at Staples commented that the overall logistics is so much more difficult from a port in Chennai or a port in Shanghai to stores. Sumant Sinha, CEO, Aditya Birla Retail, is of the view that the logistics and supply chain infrastructure has to be built from scratch; it's really about creating a new industry. India's retail industry seems promising but "is tempered by the fact that the country is grappling with severe infrastructure and policy issues," says the CII in the report it produced with A. T. Kearney. Cold chains (distribution chains for perishable items), warehousing and logistics infrastructure will create problems for global retailers if the Indian government does not focus on infrastructure. The report also points at inadequate quality control and the lack of a skilled workforce in India. Global retailers would have to customize their formats to suit Indian conditions. The Government of India fears that entry of global retail giants could put many retailers in the unorganized sector out of business. However, discussions at various retail forums have often proved that there is enough space for organized and unorganized retail in the country. Inspite of repeated discussion on the issue at various government levels to further liberalize the retail sector, no headway had been made. Indian retailers in organized and unorganized sector had geared themselves to face global competition. The organized retailers have focused on mall space acquisition, store expansion and diversification into various formats in addition to above and below the line promotional activities. The unorganized sector has focused on value added services. A report by PriceWaterhouseCoopers and Confederation of Indian Industry mentioned that small retailers in India had inherent advantages. They were located next to the consumer, making it convenient for top-up purchases. They knew the consumers well, some even by name. The report further mentioned that fixed costs for small retailers was very low thereby reducing

their breakeven point to as low as 46 % of sales. They were also focusing on re-organizing their stores and stocking new products. GLOBAL RETAILING Retail has played a major role world over in i n c r e a s i n g productivity across a wide range of consumer goods andservices .The impact can be best seen in countries likeU.S.A., U . K . , M e x i c o , T h a i l a n d a n d m o r e r e c e n t l y C h i n a . Economies of countries like Singapore, Malaysia, Hong Kong,S r i L a n k a a n d D u b a i a r e a l s o h e a v i l y a s s i s t e d b y t h e r e t a i l sector. Retail is the second-largest industry in the United

S t a t e s b o t h i n n u m b e r o f e s t a b l i s h m e n t s a n d n u m b e r o f employees. It is also one of the largest worldwide.

The retaili n d u s t r y e m p l o y s m o r e t h a n 2 2 m i l l i o n A m e r i c a n s a n d g e n e r a t e s m o r e t h a n $ 3 t r i l l i o n i n r e t a i l s a l e a n n u a l l y . Retailing is a U.S. $7 trillion sector.Wal-Mart is the worlds largest retailer. Already the worldsl a r g e s t e m p l o y e r w i t h over 1million associates, Wal-Mar td i s p l a c e d o i l g i a n t E x x o n M o b i l a s t h e w o r l d s l a r g e s t company when it posted $219 billion in sales for fiscal 2001.W a l - M a r t h a s b e c o m e t h e m o s t s u c c e s s f u l r e t a i l b r a n d i n the world due its ability to leverage size, market clout, ande f f i c i e n c y t o c r e a t e m a r k e t d o m i n a n c e . W a l - M a r t h e a d s F o r t u n e m a g a z i n e l i s t of t op 500 compan ies in th e wor ld. For bes A nn ual List of Billion air es h as th e lar gest n u m b e r (45/497) from the retail business

The following points summarise the key characteristics of the global retail industry: The global rated retail universe is very diverse, covering a large number of segments2. Global retail industry exhibits very diverse operational and financial dynamics3. Of the global retail industry, 38% of publicly-rated retailers is investment grade and 62% isspeculative trade. Significant diversity in business risk: As discussed further in this report, business risk is largely a function of the segment in which the retailer operates, as well as the overall competitive environment and the retailer's positioning within a specific segment. For example, specific segments which cater to more inelastic products (e.g. food) will generally exhibit lower business risk than many other segments. Conversely, we view specialty retailers as being more exposed to cyclical and seasonal volatility, as well as product obsolescence and fashion risk, and therefore subject to higher business risk. The positioning of a retailer within its segment is a response to the business risk of the segment, reflected in its store formats, its real estate arrangements, as well as the retailer's ability to secure a niche within a given segment. A further complicating factor is the general regulatory environment governing new store openings. Tight logistics and high standards of execution are key success factors: Ultimately, a successful retail business will have

demonstrated its ability to efficiently provide customers with the right product at the right time, and at the right price. Competition can be fierce, and customer loyalty can fluctuate rapidly if the value proposition of the retailer changes. As a result, a retailer that is unable to provide and maintain satisfactory value to customers will likely see an impact on its operating and financial performance, which may be gradual or more rapid in some instances. Retail is capital-intensive: Retailers typically require significant investments in fixed assets, including retail outlets, warehouses and distribution networks. These assets need to be stringently managed to provide optimal returns, and also need to be refurbished and relocated on an ongoing basis. Retailers have a number of financing options at their disposal, including outright asset purchases or lease contracts. We discuss the rating implications of such financing choices further in this report. Growth strategy: The growth model for most operators remains based on organic growth, although we may observe some acquisition activities mostly in non-food. In markets where concentration has reached a high level or organic growth is limited, some retailers have chosen to expand abroad to find new sources of growth (e.g. Kingfisher, Metro). However, retail formats do not always seem to travel well, with the possible exception of the hypermarkets and cash and carry. Customers across the world can be resistant to changes and do not always react well to new concepts. Relevant markets are likely to be local or regional in nature: While a few large retailers can show significant geographic diversification in their operations, most retailers remain predominantly local or regional businesses. Regional considerations are therefore important to understand, as we rate retailers throughout the world. Government policy and regulation to the retail industry in India. India's government seems to be on a gradual but definite path toward allowing foreign retailers into the country.... suggests the A.T. Kearney's Retail Development Index 2006. It is a common knowledge that the Union government has to face a number of hurdles both from it's opponents as well as it's allies before it could announce the final verdict. There have been demands from all corners regarding framing of rules to safeguard interests of the so-called small traders. Simultaneously economists have the consensus that industrialization is imperative for the growth of the economy and foreign investment has to play an inevitable role in it. With Lok Sabha elections to come in 2009, the Union government too seems a bit confused regarding decision in who's favor can provide it a political edge.
Entry of large players: stiff opposition from Left Parties

The recent outburst of fury among the Kerala's LDF(Left Democratic Front) Government has been noticeable. They have exacted for a three-pronged approach to prevent the retail giants from serving the Keralians. At the first stage, not only MNCs but also the local retail giants like Reliance will be shown the red signal. In fact a magnified CPI protest has compelled a Reliance Fresh outlet in Kochi to take 7

police protection. The draft of a bill has been finalized to amend the Kerala Essential Commodities Act so that the state government can intervene in the retail market. As a second step, local councils (70% of which is controlled by the Left) will deny licenses, that are mandatory to start a retail chain in the state. Kochi and Tiruvananthapuram corporations will be in fact commanded to reconsider the licenses of outlets that are already operating in the regions. This strategy grants more power to the state. However a ban on shopping in these outlets is still not clear. The third and the most revolutionary judgment is actually an outcome of the whole game. Government-controlled supermarkets and hypermarkets will be established in some of the key cities in the state. This rigid legal wall not only in Kerala but across the country has been born out of a traditional mindset. Kerala claims to have a literacy rate of 90.92% and a sex ratio of 1058 females per 1000 males. The data speaks for the government's prudent commitment in the case of Kerala. So it is high time that the government opens up avenues for its people to let them grow and become self dependent. But the government is still holding good, the conventional 'infant industry' outlook. The main worry is the negative impact on the already gloomy condition of employment. Let's make an attempt to understand the vicious circle of unorganized retailing and present employment scenario. Unorganized retailing has a share of about 96% in the Indian retail sector. But why should people work in such miserable situations if the manufacturing and services sector are booming is the overwhelming question. There has been a trend to migrate to cities in search of alluring bright city lights. But the consequences has been been even worse- earning lower than expected wages(Harris Todaro model of migration). The illiterate and unskilled people ultimately set up a grocery shop to earn a living. This gives birth to another unorganized retail shop in India and thus enlarges its share. So the unorganized retail market in India has born out of fate rather than selection.
The Actual Scene

Those opposing the expansion of organized retail in India must understand that the share of primary sector shrinks and that of the secondary and then the tertiary sector expands as an economy grows. This is the basic structural adjustment in case of any transforming economy. India is at a take off stage. A retardation in the agricultural sector is not permissible but inhibiting the growth of services on grounds of protection to agriculture is more irrational. A proof of this has been seen in a small town of North Bengal. The opening of a Big Bazaar (brand name for stores under Pantaloon) departmental store has seen a human deluge of about 7,000 people in the 35,000 sqft shopping mall by 3pm. This clearly indicates that people (even in remote places) have become fed up of monotonous marketing practices and demand nowadays is purely governed by choice.
The Ruling UPA government's outlook

The UPA government is rather clear in its aim of taking India to new highs. The commerce minister has repeatedly asserted that FDI will kill two birds with the same stone. It will generate substantial direct as well as indirect employment and at the same time will not tamper with the present scope of the unorganized retail market. The indirect employment includes jobs in transport, packaging and other logistic services. It will enhance competition in the country thus giving a virtual chance to face global challenges while operating at home. Mr. Nath is clearly focused on the utilization of FDI in acquiring benefits. It is true that such investments will bring in huge imports but this may also help in the Indian products reaching the foreign consumers. Foreign majors such as Wal-Mart, Tesco and Carrefour are ready to enter India. The UPA government has already permitted 51 percent FDI in Single-brand products without consulting its allies and it is expected that slowly but steadily the government will achieve its goal.