Source: E-mail
dt. 16.12.2011
Retail Reality and Selling to the
Pragmatic Customers – Multi-channel Retailing
Dr. R. Karuppasamy, M.Com., MBA., M.Phil., Ph.D.,
PLME(IIM) Ahmedabad,
Director -Management
Studies,
Ms. S. Lakshmipriya, MBA., M.Phil
Assistant Professor
- Management Science (CA),
Sri Krishna Arts
and science college,
Ms.R.Luminajulie, MBA., M.Phil
Assistant
professor - Management Science,
Sri Krishna Arts and science college, Coimbatore-08.
Abstract
Customers in the developing
countries are behaving like patrons of the developed countries. Multi channel
marketing is a boon for retailers who wish to attract and gratify today's
pragmatic customers. What are the profitable options? What is the effect of
'cross channel influence' in the retail market? Alan Morris, Managing Director
& Co-Founder, Retail Assist Ltd, shares his thoughts about the origin,
development, and future of this process. The Indian retail sector is going
through a transformation and this emerging market is witnessing a significant
change in its growth and investment pattern. Both existing and new players are
experimenting with new retail formats. Currently two popular formats
hypermarkets and supermarkets are growing at a rapid pace. Apart from the brick
–mortar formats, brick -click and click-click formats are also increasingly
functional on the Indian retail landscape. Consumer dynamics in
Keywords
Multi channel marketing,
Cross channel influence, Click click formats, Retail landscape
Introduction
The most promising and booming industry of future is retailing. AT
Evolution of retail industry
Traditionally,
retailing in
ü Value
ü Variety
ü Volume
Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid. At year end of 2000 the size of the Indian organized retail industry was estimated at Rs. 13,000 crore. The retail industry is divided into organized and unorganized sectors. Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets, retail chains, and also the privately owned large retail businesses. Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the Corner stores (Kirana shops); owner manned general stores, Cigarette stalls (paan/beedi), convenience stores, hand cart and pavement vendors, etc.
Indian Retail Structure
Retailing in
Current retail format
The retail sector in
|
Source: Businessworld Marketing Whitebook 2010
According to the E&Y India
Retail Report the following are the findings which are made
Retail sales in
Retail
Trade |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
Retail Sales (Rs Bn) |
15,409 |
17,360 |
19,465 |
21,715 |
24,215 |
27,107 |
Retail sales (Us $bn) |
349.4 |
385.8 |
421.3 |
467.0 |
516.3 |
564.7 |
Retail Sales volume growth (%) |
6.0 |
7.5 |
7.7 |
6.9 |
6.8 |
7.3 |
Retail sales US$ Value growth
(%) |
13.6 |
10.4 |
9.2 |
10.8 |
10.6 |
9.4 |
Source: EIU
The trends that are driving the growth of retail sector in
Retail Prices in
Retail
Segments |
|
Organised
Retail (Rs.Crore) |
%
Organised in 2010 |
Clothing, Textiles & Fashion Accessories |
113,500 |
21,400 |
18.9 |
Jewellery |
60,200 |
1,680 |
2.8 |
Watches |
3,950 |
1,800 |
45.6 |
Footwear |
13,750 |
5,200 |
37.8 |
Health & Beauty care services |
3,800 |
400 |
10.6 |
Pharmaceuticals |
42,200 |
1,100 |
2.6 |
Consumer Durables, Home Appliances/equipments |
48,100 |
5,000 |
10.4 |
Mobile handsets. Accessories & Services |
21,650 |
1,740 |
8.0 |
Furnishings, Utensils, Furniture-Home & Office |
40,650 |
3,700 |
9.1 |
Food & Grocery |
743,900 |
5,800 |
0.8 |
Catering Services (F & B) |
57,000 |
3,940 |
6.9 |
Books, Music & Gifts |
13,300 |
1,680 |
12.6 |
Entertainment |
38,000 |
1,560 |
4.1 |
|
US$ 270 Billion |
US$ 12.4 Billion |
|
Source: IMAGES F&R Research
Income |
1990
- 2000 |
2009
- 2010 |
RICH (annual income > US$ 4,700) ü Own cars, PCs |
3million households |
6milliion households |
CONSUMING (US$ 1000-4700) ü Have bulk of banded consumer goods, 70% of 2-wheelers,
refrigerators, washing machines |
55million |
75million |
CLIMBERS (US$500-1000) ü Have atleast one major durable (mixer, sewing machine/tv) |
66million |
78million |
ASPIRANTS (US$350-500) ü Have bicycles, radios and fans |
32million |
33million |
DESTITUTES (Less than US$350) ü Not buying |
24million |
17million |
Source: The Great Indian Retail Story 2010, Ernst & Young.
Consumers buying behaviors
Availability of lifestyle spending options is increasing for Indian
consumers and that inducing higher spends on “status acquisition”.
Traditionally, Indian consumer is cautious about debts. In recent past, this
attitude has changed radically and in recent year’s credit is no more a feared
entity. Indian consumer buying behaviour to a large extent has a western
influence. Foreign brands have gained wide consumer acceptance in
Major Formats of In-Store Retailing
Format |
Description |
The
value proposition |
Branded stores |
Exclusive showrooms either owned or franchised out by a manufacturer. |
Complete range available for a given brand, certified product quality |
Specialty Stores |
Focus on a specific consumer need, carry most of the brands available |
Greater choice to the consumer, comparison between brands is possible |
Department Stores |
Large stores having a wide variety of products, organized into different departments such as clothing, house wares, furniture, appliances, toys, etc |
One stop shop catering to varied/ consumer needs. |
Supermarkets |
Extremely large self-service retail outlets |
One stop shop catering to varied consumer needs |
Discount Stores |
Stores offering discounts on the retail price through selling high volumes and reaping economies of scale |
Low Prices |
Hyper- mart |
Larger than a supermarket, sometimes with a warehouse appearance, generally located in quieter parts of the city |
Low prices, vast choice available including services such as cafeterias. |
Convenience stores |
Small self-service formats located in crowded urban areas. |
Convenient location and extended operating hours. |
Shopping Malls |
An enclosure having different formats of in-store retailers, all under one roof. |
Variety of shops available to each other. |
Retailers need not follow strictly, the above said formats.
Considering the diversity in terms of taste and preferences existing in
Fastest growing retail segment (As per
Future plans of retail majors
Foreign retailers in India
Entry
route |
Retailers |
Franchise route |
Pizza Hut, McDonalds, Adidas, Nike, Benetton, Marks and Spencer, Baskin and Robbins, Dominos and DKNY |
Cash and carry Wholesale trading |
Metro of |
Licensing agreement |
Gucci, Disney, Liz Claiborne, Rolex and Tommy Hilfiger, Mango etc. |
Manufacturing base |
Bata, LG
Electronics, Nokia, Whirlpool, Samsung, Hindustan Lever (a Unilever joint
venture), Nestle |
Whatever may be the pros and cons of allowing 100 per cent FDI in retail sector, the issue is already politicized and it will take atleast couple of years before government makes any further changes to the foreign investment policy.
Benefits
of FDI in retail |
Drawbacks
of FDI in retail |
ü
Inflow of
investment and funds. ü
Improvement
in the quality of employment. ü
Generating
more employment. ü
Increased
local sourcing. ü
Provide
better value to end consumers. ü
Investments
and improvement in the supply chains and warehousing. ü
Franchising
opportunities for local entrepreneurs. ü
Growth of
infrastructure. ü
Increased
efficiency. ü
Cost
reduction. ü
Implementation
of IT in retail. ü
Stimulate
infant industries and other supporting industries. |
ü
Would
give rise to cut-throat competition rather than promoting incremental
business ü
Promoting
cartels and creating monopoly. ü
Increase
in the real estate prices. ü
Marginalize
domestic entrepreneurs. ü
The
financial strength of foreign players would displace the unorganized players. ü
Absence
of proper regulatory guidelines would induce unfair trade practices like
Predatory pricing. |
Source: Industry reports
Bottlenecks for the retail growth
Factors |
Description |
Implications |
Barriers to FDI |
ü FDI not permitted in pure retailing ü Franchisee arrangement allowed |
ü
Absence
of global players ü
Limited
exposure to best practices |
Lack of Industry status |
ü Government does not recognize the industry |
ü
Restricted
availability of finance ü
Restricts
growth and scaling up |
Structural impediments |
ü Lack of urbanization ü Poor transportation infrastructure ü Consumer habit of buying fresh foods ü Administered pricing |
ü
Lack of
awareness of Indian consumers ü
Restricts
retail growth ü
Growth of
small, one-store formats, with unmatchable cost structure ü
Wastage
of almost 20%-25% of farm produce |
High cost of real estate |
ü Pro-tenant rent laws ü Non-availability of government land, zoning
restrictions ü Lack of clear ownership titles, high stamp
duty (10%) |
ü
Difficult
to find good real estate in terms of location and size ü
High land
cost owing to constrained supply ü
Disorganized
nature of transactions |
Supply chain bottlenecks |
ü Several segments like food and apparel
reserved for SSIs ü Distribution, logistics constraints –
restrictions of purchase and movement of food grains, absence of cold chain
infrastructure. ü Long intermediation chain |
ü
Limited
product range makes scaling up difficult ü
High cost
and complexity of sourcing & planning ü
Lack of
value addition and increase in costs by almost 15% |
Complex Taxation System |
ü Differential sales tax rates across states ü ü Sales tax avoidance by smaller stores |
ü
Added
cost and complexity of distribution ü
Cost
advantage for smaller stores through tax evasion |
Multiple Legislations |
ü Stringent labor laws governing hours of work,
minimum wage payments ü Multiple licenses/clearances required |
ü
Limits
flexibility in operations ü
Irritant
value in establishing chain operations; adds to overall costs |
Customer preferences |
ü Local consumption habits ü Need for variety ü Cultural issues |
ü
Leads to
product proliferation ü
Need to
stock larger number of SKUs at store level ü
Increase
complexity in sourcing and planning ü
Increases
the cost of store management |
Availability of talent |
ü Highly educated class does not consider
retailing a profession of choice ü Lack of proper training |
ü
Lack of
trained personnel ü
Higher
trial and error in managing retail operations ü
Increase
complexity in sourcing and planning ü
Increase
in personnel costs |
Manufacturers Backlash |
ü No increase in margins |
ü
Manufacturers
refuse to disintermediate and pass on intermediary margins to retailers |
Source: Industry, Fitch
Conclusion
This paper lays out before the reader the state of the Indian retail
sector at a moment in time when it is in great flux. Almost every two months we
see big corporations who had previously shied away from the retail industry,
announcing huge investments into the sector. Companies already in the market
are coming up with new formats almost every quarter. Coupled with the economy
growing in leaps and bounds and the government at the center obliging with
favorable policies, the retail sector is a bus no one wants to miss in
Reference
ü Bijapurkar, R. (2003), The New, Improved Indian Consumer, Business World, 8th December, PP. 28-36.Consumer & Marketers, Marketing White Book (2006) P. 109
ü FDI in Retail Sector in India, Arpita Mukherjee, Nitisha Patel, ICRIER Publication,pg.31
ü India Retail Hand book ,ICICI and AC Neilson , ORG Marg ( 2006)
ü Living it Up, India Today, August, 22,2005, pp.86
ü Marketing White Book (2006), Business World, pp.237,114-115.
ü
Non-Store Retailing, Retailing
in
ü
Retailing in
ü
The Global Retail Development
Index (2006), At
ü TSMG ( Tata Strategic Management Group) Analysis, 2006.
ü http://cs.stanford.edu/people/thathoo/retail.pdf
ü http://www.cygnusindia.com/pdfs/TOC-Indian%20Retail%20Industry.pdf