Chap-1 Introduction

Retailing
Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mall, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a "retailer" buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy. The term "retailer" is also applied where a service provider services the needs of a large number of individuals, such as a public utility, like electric power. Shops may be on residential streets, shopping streets with few or no houses or in a shopping mall. Shopping streets may be for pedestrians only. Sometimes a shopping street has a partial or full roof to protect customers from precipitation. Online retailing, a type of electronic commerce used for business-to-consumer (B2C) transactions and mail order, are forms of non-shop retailing. Shopping generally refers to the act of buying products. Sometimes this is done to obtain necessities such as food and clothing; sometimes it is done as a recreational activity. Recreational shopping often involves window shopping (just looking, not buying) and browsing and does not always result in a purchase.

Types of retail outlets

A marketplace is a location where goods and services are exchanged. The traditional market square is a city square where traders set up stalls and buyers browse the merchandise. This kind of market is very old, and countless such markets are still in operation around the whole world. In some parts of the world, the retail business is still dominated by small family-run stores, but this market is increasingly being taken over by large retail chains. Retail is usually classified by type of products as follows:
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Food products Hard goods ("hard-line retailers") - appliances, electronics, furniture, sporting goods, etc. Soft goods - clothing, apparel, and other fabrics.

There are the following types of retailers by marketing strategy:

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Department stores - very large stores offering a huge assortment of "soft" and "hard goods; often bear a resemblance to a collection of specialty stores. A retailer of such store carries variety of categories and has broad assortment at average price. They offer considerable customer service. Discount stores - tend to offer a wide array of products and services, but they compete mainly on price offers extensive assortment of merchandise at affordable and cut-rate prices. Normally retailers sell less fashion-oriented brands. Warehouse stores - warehouses that offer low-cost, often high-quantity goods piled on pallets or steel shelves; warehouse clubs charge a membership fee; Variety stores - these offer extremely low-cost goods, with limited selection; Demographic - retailers that aim at one particular segment (e.g., high-end retailers focusing on wealthy individuals). Mom-And-Pop : is a retail outlet that is owned and operated by individuals. The range of products are very selective and few in numbers. These stores are seen in local community often are family-run businesses. The square feet area of the store depends on the store holder. Specialty stores: A typical specialty store gives attention to a particular category and provides high level of service to the customers. A pet store that specializes in selling dog food would be regarded as a specialty store. However, branded stores also come under this format. For example if a customer visits a Reebok or Gap store then they find just Reebok and Gap products in the respective stores. General store - a rural store that supplies the main needs for the local community; Convenience stores: is essentially found in residential areas. They provide limited amount of merchandise at more than average prices with a speedy checkout. This store is ideal for emergency and immediate purchases. Hypermarkets: provides variety and huge volumes of exclusive merchandise at low margins. The operating cost is comparatively less than other retail formats. Supermarkets: is a self service store consisting mainly of grocery and limited products on non food items. They may adopt a Hi-Lo or an EDLP strategy for pricing. The supermarkets can be anywhere between 20,000 and 40,000 square feet (3,700 m2). Example: SPAR supermarket. Malls: has a range of retail shops at a single outlet. They endow with products, food and entertainment under a roof. Category killers or Category Specialist: By supplying wide assortment in a single category for lower prices a retailer can "kill" that category for other retailers. For few categories, such as electronics, the products are displayed at the centre of the store and sales person will be available to address customer queries and give suggestions when required. Other retail format stores are forced to reduce the prices if a category specialist retail store is present in the vicinity. E-tailors: The customer can shop and order through internet and the merchandise are dropped at the customer's doorstep. Here the retailers use drop shipping technique. They accept the payment for the product but the customer receives the product directly from the manufacturer or a wholesaler. This format is ideal for customers who do not want to travel to retail stores and are interested in home shopping. However it is important for the

customer to be wary about defective products and non secure credit card transaction. Example: Amazon, Pennyful and EBay. Vending Machines: This is an automated piece of equipment wherein customers can drop in the money in machine and acquire the products.

Some stores take a no frills approach, while others are "mid-range" or "high end", depending on what income level they target. Other types of retail store include:
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y y y

Automated Retail stores are self service, robotic kiosks located in airports, malls and grocery stores. The stores accept credit cards and are usually open 24/7. Examples include Zoom Shops and Red box. Big-box stores encompass larger department, discount, general merchandise, and warehouse stores. Convenience store - a small store often with extended hours, stocking everyday or roadside items; General store - a store which sells most goods needed, typically in a rural area;

Retailers can opt for a format as each provides different retail mix to its customers based on their customer demographics, lifestyle and purchase behavior. A good format will lend a hand to display products well and entice the target customers to spawn sales.

Unorganized retailing
Unorganized retailing is defined as an outlet run locally by the owner or caretaker of a shop that lacks technical and accounting standardization. The supply chain and sourcing are also done locally to meet local needs. Its organized counterpart may not obtain its supplies from local sources.

Organized retailing
Modern Organized Retail can be referred as the mall setup (Reliance Mart/Big Bazaar) and standalone format (Raymond's stores/ Koutons Stores) aligned centrally in respect to Merchandise/ Manpower/ Planning/Touch & Feel Display Alignment and Technology Integration.

-----------------------------------------------------------------------------------------------------------------------------------------Reference: 1) http://www.thehindubusinessline.in/praxis/pr0301/03010380.pdf 2:05pm 09/02/12 2) http://business.outlookindia.com/pdf/ICRIERRetailReport22May08.pdf 2:15pm 09/02/12 3)

Global Retail Industry

Global Overview of Retail Sector Global retail sales declined 3.7 percent in 2009 to 13.9 trillion USD1. While sales for 2009 were low, it is worthwhile to note that sales of the global retail industry have doubled since 2003 when worldwide retail sales were $7 trillion USD. Along with sales growth, profitability for most retailers was also sharply affected. Profit margins of the 200 largest retailers in the world fell to 2.4 percent from 4.1 percent during fiscal 2008-09 with more than 30 retailers reporting operating losses2. This trend affected almost every retail category and geographical area except Africa and the Middle East where retailers saw an increase in profitability. The composition of the top 10 retailers in the world remained the same in 2009 compared to the previous year. This group now accounts for more than 30 percent of total retail sales of the top 250 retailers. Wal-Mart remained the worlds largest retailer, ahead of Carrefour Group. In major markets such as the US and UK, retail spending is expected to decline, while emerging markets such as China and India should have strong growth in 2010. There are signs of improvement for US consumers, but the recent destruction of wealth is expected to limit consumer spending. Asia is believed to represent the best growth prospects for retailers and consumer-product companies in 2010.

Retail globalization
Among developed countries, the UK continues to lead the world as the most international retail market. Europe maintains its ability to attract the worlds top retailers in 2009, with 58% of the worlds top 250 retailers having a presence in Europe. The UK outperformed other major European economies such as Spain, France, Germany and Italy, ranking first among the top 15 most international retail markets. European retailers are more prone to globalization than American retailers because they face restrictions on development in their home markets. In France, due to regulations, hypermarkets cannot open new stores in their home market easily. Consequently, they principally seek growth in other markets. This is why the lions share of global retailers is based in Europe. The US was 10th globally, with 39% of international retailers. This can be attributed, at least in part, to the size, maturity and strength of its domestic market. US retailers tend to penetrate their vast national market extensively before considering international expansion. Although Europe continues to dominate, with eight out of the top 15 most international retail locations, emerging economies such as China, Russia and the UAE have gained significant ground in the past 12 months. According to a recent survey of 60 retail executives from around the world3, the BRIC4 region remains the highest priority markets for retail expansion, with nearly 80 percent of respondents citing one of these markets as part of their firms plans for short-term international growth. Along with developed market players, emerging market-based local retailers have begun expanding outside their region. In a similar survey, 92 percent of respondents from emerging markets are looking to expand beyond their home market, with close to 30 percent of those saying a developed country is among their top three expansion targets. These emerging market retailers are using their unique insights into local business and culture to expand regionally in a trend that will impact the global retail landscape. In addition, retailers are looking for a shorter payback period of three years, compared to five to seven years in 2005.

 Despite the global economic slowdown, many retailers such as cash-rich private companies have continued their expansion plans throughout the past 12 months. A survey of 280 retailers5 saw them expand their international presence by two more countries than in the previous year. This was primarily in clothing, footwear and accessories.

Multi-channel retailing
According to a consumer survey6, 78 percent of respondents in the US used two or more retailing channels and 30 percent used three or more channels to research and then finally make their purchases. Similarly, in Europe, the population purchasing online increased from 32 percent in 2008 to 37 percent in 20097. To grab the benefits of multi-channel retailing, players are enhancing their capabilities. - For example, in May 2010, Marks & Spencer announced the launch of a new version of its Web site, designed to be easily accessible from mobile devices. This will allow customers to conveniently browse and buy items by using their mobile devices. - Similarly, Kroger, Safeway and ShopRite are sending smart electronic shopping coupons to their customers through wireless devices, television and computers. This option lets customers use these coupons to get discounts on their product purchases without going through the trouble of clipping and collecting paper coupons while helping retailers increase their distribution. - Tesco, whose online retail sales during the year ending February 2010 grew 7.3 percent annually, has set up a consultancy named Task Retail, which will advise Tesco on its online clothing strategy.

Rise of online retailing

Global online retail sales grew by 14.5 percent in 2009 to reach 348.6 billion USD8. Electronics is the largest segment in global online retail sales, contributing around 22.6 percent. The US is the biggest market for online retail sales with 37.2 percent market share, whose total retail e-commerce spending reached 129.8 billion USD in 20099, marginally lower than the 2008 level of 130.1 billion USD. A high level of product differentiation together with low fixed costs and dynamic market revenue growth is seen in the US market. However, it also creates rivalry in the market as a large number of players are active along with the absence of consumer switching costs. Online retail sales still account for only 2.5 percent of total retail sales on a global basis. On an average, online sales account for 6.6 per cent of total sales for the top 100 retailers in the world10. Hence, most retailers have yet to make a strong online push through multi-channel retailing. By 2014, global online retail sales are expected to be 778.6 billion USD11, increasing at a CAGR of 22.2 percent. To sustain this level of sales, internet penetration in North America, Europe and Asia-Pacific is expected to increase by 10.6 percent, 7.6 percent and 12.7 percent12 on a y-o-y basis respectively.

Organized retailing in India

The recent years have witnessed rapid transformation and vigorous profits in Indian retail stores across various categories. This can be contemplated as a result of the changing attitude of Indian consumers and their overwhelming acceptance to modern retail formats. Asian markets witness a shift in trend from traditional retailing to organized retailing driven by the liberalizations on Foreign Direct Investments. For example, in China there was a drastic structural development after FDI was permitted in retailing. India has entered a stage of positive economic development which requires liberalization of the retail market to gain a significant enhancement. Domestic consumption market in India is estimated to grow approximately 7 to 8% with retail accounting for 60% of the overall segment. Of this 60%, organized retail is just 5% which is comparatively lesser than other countries with emerging economies. In developed countries organized retailing is the established way of selling consumer products. Despite the low percentage, Indian textile industry has grown noticeably in organized retailing of textile products. The negative phase in exports may have compelled the Indian textile retailers to explore the opportunities in the domestic market substantially causing the outstanding growth in

the concerned segment. These indications give a positive notion that organized retailing has arrived in the Indian market and is here to stay. It is expected to grow 25-30 per cent annually and would triple in size from Rs35,000 crore in 2004-05 to Rs109,000 crore ($24 billion) by 2010. India is on the radar screen in the retail world and global retailers and at their wings seeking entry into the Indian retail market. The market is growing at a steady rate of 11-12 percent and accounts for around 10 percent of the countrys GDP. The inherent attractiveness of this segment lures retail giants and investments are likely to sky rocket with an estimate of Rs 20-25 billion in the next 2-3 years, and over Rs 200 billion by end of 2010. Indian retail market is considered to be the second largest in the world in terms of growth potential. A vast majority of India's young population favors branded garments. With the influence of visual media, urban consumer trends have spread across the rural areas also. The shopping spree of the young Indians for clothing, favorable income demographics, increasing population of young people joining the workforce with considerably higher disposable income, has unleashed new possibilities for retail growth even in the rural areas. Thus, 85% of the retail boom which was focused only in the metros has started to infiltrate towards smaller cities and towns. Tier-II cities are already receiving focused attention of retailers and the other smaller towns and even villages are likely to join in the coming years. This is a positive trend, and the contribution of these tier-II cities to total organized retailing sales is expected to grow to 20-25%. Challenges facing the Organized Retail Industry: Despite the rosy hopes, some facts have to be considered to positively initiate the retail momentum and ensure its sustained growth. The major constraint of the organized retail market in India is the competition from the un-organized sector. Traditional retailing has been deep rooted in India for the past few centuries and enjoys the benefits of low cost structure, mostly owner-operated, therein resulting in less labor costs and little or no taxes to pay. Consumer familiarity with the traditional formats for generations is the greatest advantage to the unorganized sector. On the contrary, organized sector have big expenses like higher labor costs, social security to employees, bigger premises, and taxes to meet. Availability and cost of retail space is one major area where Government intervention is necessary. Liberalizing policy guidelines for FDI needs focus as well. Proper training facilities for meeting the increasing requirements of workers in the sector would need the attention of both Government and the industry. Competition for experienced personnel would lead to belligerence between retailers and higher rates of attrition, especially during the phase of accelerated growth of the retail industry. The process of avoiding middlemen and providing increased income to farmers through direct procurement by retail chains need the attention of policy makers. Taking care of supply chain management, mass procurement arrangements and inventory management are areas that need the focus of entrepreneurs. India is now on the radar of global retailers. Accelerated development of retailing industry in the country and building brand value of domestic products is essential not only for marketing our consumer products more efficiently, but also for the development of our own retailing industry.

Reference: 1) http://www.fibre2fashion.com/industry-article/7/697/organized-retailing-in-india1.asp 2:35pm 09/02/12

2) http://business.outlookindia.com/pdf/ICRIERRetailReport22May08.pdf 2:40pm 07/02/12