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WHAT LIES IN STORE FOR THE RETAILING INDUSTRY IN INDIA?

INDUSTRY PROFILE

India has the highest number of retail outlets per capita in the world. Majority of these outlets
are small outfits occupying an average of 500 sq ft in size managed by family members
having negligible investment in land and assets paying little or no tax. The term used to
describe these stores is “kirana dukaan” or “kirana kottu”. These stores form part of the
unorganized sector. Organized sector consists of super markets, retail outlets, etc.

Indian Retail Segment

Organized sector
Unorganized
(15%)
sector (85%)

The outlets in the unorganized sector offer mainly food items and groceries – the staple of
retailing in India.

Customer contact is personal and one on one , running through generations.

The key characteristics of these stores are:

1) Limited no of items

2) Quality is standard,

3) Moderate pricing,

4) Sold on credit

5) Payment is taken at the end of the month

At present there is considerable hype about the growth prospects of the organized retailing
industry in India possibly because of keen interest of international retailers.

Overall, the Indian retailing industry contributes 18 % to the GDP of the country

GROWTH PROSPECTS IN THE RETAIL INDUSTRY

• High growth is expected (USD 520 billion to USD 950 billion).


• Organized Industry is expected to grow from USD 40 billion(FY 2013-14) to USD 95
billion in FY 2018-19.
• High potential is projected in the key retail segments such as apparel, food, mobile
and telecom, jewellery, pharmacy among others
1. ECONOMIC ENVIRONMENT

• LPG reforms during the 1990’s have created several factors that have made high
growth of the organized retailing industry possible.
• The growing size of the consumer class in India in tandem with the entry and
expansion of organized sector players in recent years has set the pace for corporate
investment in retail business.
• Every major Indian Business group have been looking for opportunities in the
growing retailing industry.
• Big names like Aditya Birla Group, Indian Tobacco Company (ITC), Reliance, Tata,
etc have either entered the market or are trying to enter the market,.
• International environment is presently replete with examples of the fast paced growth
of retailing industries in many developing countries around the world.
• Post the LPG reforms, the urban Indian has become more aware about international
trends and the conveniences of modern shopping.
• Companies with sound capital resources and those who can take on the perils of a
developing and fast paced economy like India are already existing players.

2. MARKET ENVIRONMENT

• Most significant in terms of growth and prospects of retailing industry in India.


• In terms of geography the reach of the organized retailing industry has been growing.
• Tier II and Tier III cities are becoming the place of interest for organized retailers.
• Traditionally, street carts, pavement shops, kirana stores, public distribution systems,
kiosks, weekly markets and such other formats are unique to India and have been in
existence for a long time. Organized sector is viewed as imitations of those present in
developed countries.
• Notable trends have been the development of integrated retail cum entertainment
centres and malls as opposed to stand alone developments. Besides there are some
attempts at indigenous formats aimed at the rural markets.
• Online retailing is a big potential area with expected high growth. Cash on Delivery
options have already proven to be successful though inventory management and
logistics infrastructural bottlenecks remain challenging.
• Pricing is an important issue on the retailing industry. While some consumers are cost
conscious and desire lower prices others are quality conscious and desire high quality
products.
• Major Indian business houses like the Tata group, Indian Tobacco Company (ITC),
Reliance, etc have already entered the market. Existing players like Fortune Group,
FabIndia, etc, have upped their game in order to retain their positions. International
players like IKEA and Wal-Mart have also entered the market. In fact Wal-Mart by
acquiring Flipkart has also entered the E-Retailing segment within the organized
sector. Competition has become very stiff for existing players and has made it very
difficult for new entrants who seek to solely base their operations within the
organized segment of the Indian Retailing Industry establish themselves.
3. POLITICAL ENVIRONMENT

• Political environment is ambiguous in terms of its support to the organised retailing


industry. This is obvious because the unorganized industry employs nearly 8% of the
Indian Population and is widely spread geographically.
• The Politics of numbers make it imperative for the political class to adopt an
ambiguous stand.
• In some cases, politicians have acted in favour of the unorganized sector by
disallowing the setting up of large retail outlets in some states.
• Overall, however, there is ambiguity as there are several environmental trends in
favour of the development of the organized retailing industry.

4. REGULATORY ENVIRONMENT

• In India, the retailing industry is categorised into two: single brand and multi brand
retail trading. FDI under single brand retailing is permitted to 100% while for multi
brand retailing a cap of 51% with government approval and conditionalities has been
imposed.
• Liberalisation of FDI policies in retail ,adoption of goods and services taxation system
and further clarity on provisions regarding sourcing investment in back-end, and
limiting the role of regulations are some factors that are expected to make life easier
for the industry participants.

5. SOCIO-CULTURAL ENVIRONMENT

• There are several encouraging signals. The following are some major socio cultural
environment factors:-
❖ There is a large rural market to be tapped.
❖ Rising disposable income.
❖ Increasing urbanisation.
❖ Highly aware and affluent young population.
❖ Growing number of working women
❖ Changing consumer preferences.

A majority of India’s consumers are young. They have deep roots in local culture and
traditions yet are eager to get connected and know the outside world. This group constitutes
people who are enthusiastic spenders and like to visit the new format retail outlets for
convenience and to save time.

Pitfalls:

Organised retailing in India has to deal with the misconception among middle-class
consumers that the modern retail formats being air conditioned, sophisticated places are
bound to be more expensive and not welcoming to the masses.
6. SUPPLIER ENVIRONMENT

• Probably offers the biggest constraint on the growth of the retailing industry in India.
• Reaching India’s consumers cost effectively is a distribution nightmare owing to the
sheer geographical size of the country and the presence of traditional, fragmented
distribution and retailing networks and erratic logistics.
• Supply chain management and merchandising practices are increasingly converging
and apparel retailers are establishing collaborations with their vendors.
• Another area of concern is the severe shortage of well trained workforce.

Favourable factors include:

❖ Favourable real estate


❖ Easy availability of credit and bank loans
❖ Innovative physical and online channels and increasing service orientation in company
cultures may make the supplier environment more prospective.

7. TECHNOLOGICAL ENVIRONMENT

• Some global retailers have demonstrated that innovative use of technology can
provide substantial strategic advantage.
• Innovative use of IT can help in a wide variety of functions such as quick information
processing and timely decision making, reduction in processing costs, real time
monitoring and control of operations, security of transactions and operations
integration.
• The availability of software application systems to deal with functions like supply
chain management can be of great help.

CONCLUSION

• The Indian market offers an interesting mix of possibilities and challenges.


• A successful model of large scale retailing appropriate is yet to emerge.
• Acceptability of modern retail formats is yet to be established.
• The retailers are wary and involved in back end operations , adopting low-cost
business models , controlling capital spending and operational costs and reducing
store size with careful selection of locations
ETOP FOR A COMPANY INTERESTED IN ENTERING THE ORGANIZED
RETAILING INDUSTRY IN INDIA

NO ENVIRONMENTAL FACTORS NATURE OF IMPACT OF EACH


IMPACT SECTOR
1 Economic Factors Positive Favourable economic
conditions and a high
growth rate makes it
evident that this industry
has high potential
2 Market Factors Neutral Market is rapidly
expanding. However, there
is a presence of well
established and strong
competitors along with
capable co entrants. The
major factor being that the
organized retailing segment
occupies approximately
15% of the total industry
yet due to favourable
conditions it is seeing a
huge influx from MNCs.
3 Political Factors Neutral Political fraternity is
divided. Some would
favour and some would
oppose the expansion of the
organized segment. But, the
trends are in favour of the
organized retailing industry
4 Regulatory Factors Positive Regulations are not too
rigid. They are flexible and
allow free trade. New
policies are being adopted
which would increase ease
of doing business for the
participants of the
organized retailing
industry.
5 Socio-cultural Factors Positive Young Indians are getting
attracted to the organized
retailing industry due to the
convenience and other
facilities it offers.
6 Supplier Factors Negative Due to lack of requisite
structural facilities and lack
of trained staff it is not
possible to overcome the
sheer size of the country. It
will take a lot of time to fill
in the requirements and a
lot of capital.
7 Technological Factors Positive Due to rapid technological
upgrades and available
facilities it is easy to
overcome shortcoming and
better manage the
resources.

The ETOP analysis reveals that entering the organized retailing industry is lucrative. However, it can
also turn disastrous as there are significant problems which are to be overcome. If properly played it
would be a success ,hence, it ultimately comes down to the efficiency of the organization.