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RETAIL

What is Retail?

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“Retailing includes all activities involved in selling goods or services to the final consumers for personal,
non-business use.” - Phillip Kotler

Any organization that sells the products for consumption to the customers for their personal, family, or
household use is in the occupation of retailing.

 Retailing may be understood as the final step in the distribution of merchandise for
consumption by the end consumers.

 Retailing is responsible for matching final consumer demand with supplies of different
marketers.

 Retailing is high intensity competition industry, The reasons for its popularity lie in its ability to
provide easier access to variety of products, freedom of choice and many services to consumers.

 The Indian retail is dotted by traditionally market place called bazaars or haats comprises of
numerous small and large shops, selling different or similar merchandise

“It is defined as all activities involved in selling goods or services directly to the final consumer for their
personal, non-business use via shops, market, door-to-door selling, and mail-order or over the internet
where the buyer intends to consume the product.”

In 2004, The High Court of Delhi defined the term “retail” as a sale for final consumption in contrast to
a sale for further sale or processing. Retailing involves a direct interface with the customer and the
coordination of business activities from end to end- right from the concept or design stage of a
product or offering, to its delivery and post-delivery service to the customer.
Retail in Marketing Channels

With industrialization and globalization, the distance between the manufacturer and the consumer has
increased. Many times a product is manufactured in one country and sold in another. The levels of
intermediaries involved in the marketing channel depends upon the level of service the consumer
desires.

Type A and B: Retailers. For example, Pantaloons, Walmart.


Type C: Service Providers. For example, Eureka Forbes.
Characteristics of Retailing

 Direct Interaction with Customers.

 Lower Average Amount of Sale Transaction.

 Point of Purchase and Display and Promotion.

Importance of Retailing

 Services to Wholesalers and Producers.


a) Advertisement of new products.
b) Arrangement to sell the goods.
c) Information about consumer habits, tastes and needs.
d) Sharing of Risks.
 Services to consumers.
e) Selection.
f) Variety of goods.
g) Demand creation.
h) Distribution.
i) Credit Facility.

Functions of a Retailer
 Retailor provides the goods that customer needs, in a desired form, at a required time and
place.
 A retailor does not sell raw material. He sells finished goods or services in the form that
customer wants.
 A retailer buys a wide range of products from different wholesalers and offers the best products
under one roof. Thus, the retailor performs the function of both buying and selling.
 A retailor keeps the products or services within easy reach of the customer by making them
available at appropriate location.

In other words we can summarise it as:

 Sorting.
 Breaking Bulk.
 Holding Stock.
 Additional Services.
 Channel of Communication.
 Transport and Advertising Functions
The Evolution of Retail market in India
It is interesting to focus on the evolution of the retail sector in India. Historically they evolved as a
source of entertainment (in the form of village fairs, melas etc.) which was within the rural reach. Later
on these were transformed Mom and Pop/ Kirana stores which are of traditional variety neighbourhood
shops.
Retail in India has evolved to support the unique needs of our country, given its size and complexity
Haats, Mandis and Melas have always been a part of the Indian landscape. They still continue to be
present in most parts of the country and form an essential part of life and trade in Various areas.

Though the barter system is considered as the oldest form of retailing, the traditional forms of retailing
such as neighborhood stores, main-street stores and fairs still exist in the laid-back towns around the
world. During post-war years in the US and Europe, small retailers reformed their shops into large
organized stores, markets, and malls.

Retail evolution mainly took place in three stages:

 Conventional / Traditional: Itinerant Salesman; Haats; Melas; Mandis; Hawkers, Weekly bazars
etc.
 Established: Kirana shops; Convenience/ department stores; PDS/fair price shops; Pan/ Beedi
Shops, Grocery Shops; etc.
 Emerging: Exclusive retail outlets; Hypermarket; Internal retail; Malls / Specialty Malls;
Multiplexes; Fast food outlets; Service galleries; e-retsailing.

Finally shopping malls, supermarkets, departmental stores etc has brought a great revolution to the
Indian retail market (figure-1)

The PDS (Public Distribution System) would easily as the single largest retail chain existing in the
country. the evolution of the PDS of Grains in India has its origin in the “rationing system” introduced by
the British during world war II
The system was started in 1939 in Bombay and subsequently extended to other cities and towns. the
system was abolished post war but however attaining independence India was forced to reintroduce it
in 1950.

There was rapid increase in the ration shops ( being increasingly called the Fair Price Shop or FPSs)

The Canteen Stores Department and the Post Offices in India are also among the largest network of
outlets in the country reaching population across the country.

The Khadi & Village industries (KVIC) was also set up post independence. The cooperative movement
was again championed by the government.

India's Largest retail Chains:

 PDS: 465,000
 Post offices: 160,000
 KVIC: 7,000
 CSD Stores:3,400

 In the past decade, the Indian marketplace has transformed dramatically. However from the
1950,s to the 80,s, investment in various industries was limited due to low purchasing power in
the hands of the consumer and the government’s policies favoring the small scale sector.

 The first attempts at organized retailing were noticed in the textiles sector. One of the pioneers
in this field was Raymond’s which set up stores to retail fabric.

 Raymond’s distribution network today comprises 20,000 retailers and over 256 exclusive
showrooms in over 120 cities of the country.

 Other textile manufacturing who set up their own retail chains wee Reliance- which set up Vimal
showrooms and Garden Silk Mills, which set up Garden Vareli showrooms.

Distinction of Indian Retail The Indian trading sector, as it has developed over centuries, is very
different from that of the developed countries. In the developed countries, products and services
normally reach consumers from the manufacturer/producers through two different channels:
(a) via independent retailers (“vertical separation”) and
(b) directly from the producer (“vertical integration”).

In India, however, the above two modes of operation are not very common. Small and medium
enterprises dominate the Indian retail scene. The trading sector is highly fragmented, with a large
number of intermediaries. So also, wholesale trade in India is marked by the presence of thousands of
small commission agents, stockiest and distributors who operate at a strictly local level. Retail giants like
US-based Wal-Mart and French Carrefour are very keen to enter in the segment. Bharti Enterprises and
Wal-Mart Stores entered into a joint venture in August 2007 and started cash-and-carry stores named
'Best Price Modern Wholesale' in 2009.
Division of Indian Retail Industry The Indian retail industry is generally divided into two major segments
– organized retailing and unorganized retailing.

(a) Organized 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 and retail chains, and also the privately owned large retail businesses.

(b) Unorganized Retailing - refers to the traditional formats of low-cost retailing, for example, the
local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand
cart and pavement vendors, etc.

In the developed economies, organized retail is in the range of 75-80 per cent of total retail, whereas in
developing economies, the unorganized sector dominates the retail business.

The share of organized retail varies widely from just one per cent in Pakistan and 4 per cent in India to
36 per cent in Brazil and 55 per cent in Malaysia.

Modern retail formats, such as hypermarkets, superstores, supermarkets, discount and convenience
stores are widely present in the developed world, whereas such forms of retail outlets have only just
begun to spread to developing countries in recent years.

In developing countries, the retailing business continues to be dominated by family-run neighbourhood


shops and open markets. As a consequence, wholesalers and distributors who carry products from
industrial suppliers and agricultural producers to the independent family-owned shops and open
markets remain a critical part of the supply chain in these countries.

India is a high potential , low economic risk and moderate potential risk – hence has acquired
remarkable position in Global retail rankings.

 It is expected to become the 3rd largest consumer economy reaching US$400 billion in
consumption by 2025, as per Boston Consulting Group.
 India is ranked 1st in Global Retail Development index 2017 backed by rising middle class and
rapidly growing consumer spending.
 Retail market witnessed investment of US$800 million by Private Equity (PE) firms wealth funds
in 2017.
 Department of Industrial Policy and Promotion approved 3 FDI’s , Mountain Trail Food, Kohler
India Corp. and Merlin Entertainments.
 Global retailers are souring from India, and is growing. They are moving from 3rd Party buying to
wholly owned-managed sourcing and buying with their offices in India.

Retail is expected to grow @ 12% p.a


Modern Trade is expected to grow @20% p.a
Traditional trade is expected to grow @10% p.a
Online retail is expected to grow at par with physical retails (Stores) in next 5 years.
It has grown @23% in 2017 to US$ 17.8 billion.
B2B e-commerce to grow $700 billion by 2020
B2C is estimated to grow $26
Direct marketing in India is expected to grow to $159 billion by 2029
Luxury market is expected to grow to $30 billion by 2025 from $23.8 billion in 2017.

Classification of Retailing Formats


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The retailing formats can be classified into following types as shown in the disagram:

Ownership Based Retailing

Let us see these retailers in detail:

 Independent Retailers: They own and run a single shop, and determine their policies
independently. Their family members can help in business and the ownership of the unit can be
passed from one generation to next. The biggest advantage is they can build personal rapport
with consumers very easily.

For example, stand-alone grocery shops, florists, stationery shops, book shops, etc.

 Chain Stores: When multiple outlets are under common ownership it is called a chain of stores.
Chain stores offer and keep similar merchandise. They are spread over cities and regions. The
advantage is, the stores can keep selected merchandise according to the consumers’
preferences in a particular area.

For example, Westside Stores, Shopper’s Stop, etc.


 Franchises: These are stores that run business under an established brand name or a particular
format by an agreement between franchiser and a franchisee. They can be of two types:
o Business format. For example, Pizza Hut.

o Product format. For example, Ice cream parlors of Amul.

 Consumers Co-Operative Stores: These are businesses owned and run by consumers with the
aim of providing essentials at reasonable cost as compared to market rates. They have to be
contemporary with the current business and political policies to keep the business healthy.

For example, Sahakar Bhandar from India, Puget Consumers Food Co-Operative from north US, Dublin
Food Co-Operative from Ireland.

Merchandise Based Retailing


Let us see these in detail:

 Convenience Stores: They are small stores generally located near residential premises, and are
kept open till late night or 24x7. These stores offer basic essentials such as food, eggs, milk,
toiletries, and groceries. They target consumers who want to make quick and easy purchases.

For example, mom-and-pop stores, stores located near petrol pumps, 7-Eleven from US, etc.

 Supermarkets: These are large stores with high volume and low profit margin. They target mass
consumer and their selling area ranges from 8000 sq.ft. to 10,000 sq.ft. They offer fresh as well
as preserved food items, toiletries, groceries and basic household items. Here, at least 70%
selling space is reserved for food andgrocery products.

For example, Food Bazar and Tesco.

 Hypermarkets: These are one-stop shopping retail stores with at least 3000 sq.ft. selling space,
out of which 35% space is dedicated towards non-grocery products. They target consumers over
large area, and often share space with restaurants and coffee shops. The hypermarket can
spread over the space of 80,000 sq.ft. to 250,000 sq.ft. They offer exercise equipment, cycles,
CD/DVDs, Books, Electronics equipment, etc.

For example, Big Bazar from India, Walmart from US.

 Specialty Stores: These retail stores offer a particular kind of merchandise such as home
furnishing, domestic electronic appliances, computers and related products, etc. They also offer
high level service and product information to consumers. They occupy at least 8000 sq.ft. selling
space.

For example, Gautier Furniture and Croma from India, High & Mighty from UK.
 Departmental Stores: It is a multi-level, multi-product retail store spread across average size of
20,000 sq.ft. to 50,000 sq.ft. It offers selling space in the range of 10% to 70% for food, clothing,
and household items.

For example, The Bombay Store, Ebony, Meena Bazar from India, Marks & Spencer from UK.

 Factory Outlets: These are retail stores which sell items that are produced in excess quantity at
discounted price. These outlets are located in the close proximity of manufacturing units or in
association with other factory outlets.

For example, Nike, Bombay Dyeing factory outlets, Brand Factory from Birlas.

 Catalogue Showrooms: These retail outlets keep catalogues of the products for the consumers
to refer. The consumer needs to select the product, write its product code and handover it to
the clerk who then manages to provide the selected product from the company’s warehouse.

For example, Argos from UK. India’s retail HyperCity has joined hands with Argos to provide a catalogue
of over 4000 best quality products in the categories of computers, home furnishing, electronics,
cookware, fitness, etc.

Non-Store Based (Direct) Retailing


It is the form of retailing where the retailer is in direct contact with the consumer at the workplace or at
home. The consumer becomes aware of the product via email or phone call from the retailer, or through
an ad on the television, or Internet. The seller hosts a party for interacting with people. Then introduces
and demonstrates the products, their utility, and benefits. Buying and selling happens at the same place.
The consumer itself is a distributor.

For example, Amway and Herbalife multi-level marketing.

Non-Store based retailing includes non-personal contact based retailing such as:

 Mail Orders/Postal Orders/E-Shopping: The consumer can refer a product catalogue on


internet and place order for purchasing the product via email/post.
 Telemarketing: The products are advertised on the television. The price, warranty, return
policies, buying schemes, contact number etc. are described at the end of the Ad. The
consumers can place order by calling the retailer’s number.

The retailer then delivers the product at the consumer’s doorstep.

For example, Asian Skyshop.

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 Automated Vending/Kiosks: It is most convenient to the consumers and offers frequently
purchased items round the clock, such as drinks, candies, chips, newspapers, etc. The success of
non-store based retailing hugely lies in timely delivery of appropriate product.

Service Based Retailing


These retailers provide various services to the end consumer. The services include banking, car rentals,
electricity, and cooking gas container delivery. The success of service based retailer lies in service
quality, customization, differentiation and timeliness of service, technological upgradation, and
consumer-oriented pricing.

Product Retailing versus Service Retailing


Product Retailing Service Retailing
Quality and cost are prime factors in the success of product retailing. Timeliness and nature of people
involved in service retailing are crucial factors in the success.

Product retailer and consumer relationship is established only if the consumer frequently visits the
outlet.

Service provider and customer relationship is established right from start.

Products can be stored in outlet while retailing.

Services are intangible hence cannot be stored while retailing.

Product retailing can be standardized. Service retailing cannot be standardized as it highly depends upon
the human entities involved.

In product retailing, the ownership of the purchased product can be transferred from owner to
consumer after transaction.

In service retailing, there is no transfer of ownership. The consumer can only access the service.
Retail Terminology
Here are some commonly used terms in Retail Management:

Consumerism The organized-efforts by individuals,


groups, and governments to protect
consumers from policies and practices
that infringe consumer rights.

Consumption Using a product or a service for one’s


benefit in particular time; not for resale.

Customer Satisfaction It is the degree at which the customer is


pleased after purchasing and using a
product or availing a service, and going
to the same retailer or service provider.

Distribution It is movement of products or services


from manufacturer to end consumer
through a channel.

Empowered Consumers The consumers with access and


knowledge of Internet, exploiting the
power of digital technologies, and
demanding products and services
matching their personal preferences.

Inventory Shrinkage Reduction of inventory due to theft by


employees, customers, or by error from
merchandise management at the time of
receiving merchandise.

Logistics It is planning, executing and controlling


of the procurement and movement of
material and resources on some
beneficial purpose.

Markdown Reduction in price.

Planogram Predetermined layout of display to


promote merchandise sale.

Procurement It is the process of buying a product or a


service. It involves various stages such
as planning, researching supplier or
service provider, negotiating price,
placing order, making payment and
availing the product or service.
Retail Sale of products or services to end
customer for consumption rather than
resale.

Supply-Chain Management It is the management of material and


information flow in a chain from
manufacturer to consumer for providing
highest level of customer satisfaction at
lowest possible price.

Switching Costs The costs incurred by a consumer for


switching from one supplier or
marketplace to another.

Wholesale The business of selling products of large


quantity at lesser price to retailers or
consumers.

Drivers of Retail Change in India:


Changing Income Profiles: Steady economic growth fuelled the increase in disposable income in India.
The average middle class family's disposable income rose by more than
20% between 1999-2003.

Diminishing difference between Rural and urban India: Rural India accounts for over 75% of India
population and this in itself offers a tremendous opportunity for generating volume driven growth. Tax
benefit. In year 2002-03 LIC sold 50% of its policies in rural India. Same BSNL also sold its 50%
connection in small towns .

Changes in Consumption patterns: Occupational changes and expansion of media have caused a
significant change in the way the consumer lives and spends his money.

The changes in income brought about changes in the aspirations and the spending patterns of the
consumers, the buying basket of the consumer changed.

The emergence of a young Earning India : Nearly 68.4% of the Indian population is below the age of 34.
Taking advantages of employment opportunity in the booming service sector these young Indians are
redefining service and consumption patterns.

Challenges to Retail development in India:

 Retail not being recognized as an industry in India.


 The high costs of real estate.
 Lack of Adequate infrastructure.
 Multiple and complex taxation system.
FDI in Retail in India:

Types of Retailing in India


(a) Single Brand- Single brand implies that foreign companies would be allowed to sell goods sold
internationally under a “single brand”, viz., Reebok, Nokia and Adidas. FDI in “Single brand” retail
implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were
to obtain permission to retail its flagship brand in India, those retail outlets could only sell products
under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted
permission, Adidas could sell products under the Reebok brand in separate outlets.

(b) Multi Brand- FDI in Multi Brand retail implies that a retail store with a foreign investment can sell
multiple brands under one roof. Opening up FDI in multi-brand retail will mean that global retailers
including Wal-Mart, Carrefour and Tesco can open stores offering a range of household items and
grocery directly to consumers in the same way as the ubiquitous “kirana” store. The approval for single
and multi brand includes a set of riders for the foreign investors, aimed at ensuring that the foreign
investment makes a genuine contribution to the development of Indian infrastructure and logistics, at
the same time facilitating integration of small retailers into the upgraded value chain.
While the minimum capital requirement of US$ 100 million is unlikely to be an issue for the large foreign
players vying to enter India in the supermarket/ hypermarket segment, it could make it difficult for
foreign investors planning to enter specialty formats such as music, mobile, electronics goods, among
others, as these formats require relatively lower investments. Further, the approval requirements from
State Governments could limit the cities that FDI backed retailers can operate in. The current opposition
raised by a number of political parties, if persists, may pose a major roadblock in the entry of the foreign
retailers in India. Besides restricting the number of cities these retailers can operate in, it could also lead
to problems in creating supply chain efficiency.
Source: Press Information Bureau, ICRA [Note: Back-end infrastructure will include capital expenditure on all
activities, excluding that on front-end units; i.e. it will include investment made towards processing,
manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse,
agriculture market produce infrastructure, etc. Expenditure on land cost and rentals, if any, will not be counted for
purposes of back-end infrastructure]

Rationale Behind Allowing FDI in Retail Sector

FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenario of
low competition and poor productivity.

Permitting foreign investment in food-based retailing is likely to ensure adequate flow of capital into the
country, & its productive use in a manner likely to promote the welfare of all sections of society,
particularly farmers and consumers.

It would also help bring about improvements in farmers‟ income & agricultural growth and assist in
lowering consumer prices inflation. Apart from this, by allowing FDI in retail trade, India will significantly
flourish in terms of quality standards and consumer expectations, since the inflow of FDI in retail sector
is bound to pull up the quality standards and cost-competitiveness of Indian producers in all the
segments. It is therefore obvious that we should not only permit but encourage FDI in retail trade.