Introduction to Retail

Unit I
Introduction to Retail: what is Retail,
The functions of retail, retailing in
India. The evolution of retail in India,
retail Change in India
Introduction
 The word retail has its origin in French word
retailer and means “to cut a piece’’ or “to break
bulk’.
 “Retailing is the sale of goods and services
to the ultimate consumer for personal,
family or household use.”
 According to Kotler: “Retailing includes all
the activities involved in selling goods or
services to the final consumers for
personal, non business use”
 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
’Wheel of Retailing
A better known theory of retailing “wheel of
retailing” proposed by Mac comb McNair says;
1.New retailers often enter the market place with
low prices, margins, and status. The low prices are
usually the result of some innovative cost-cutting
procedures and soon attract competitors
2.With the passage of time, these businesses
strive to broaden their customer base and
increase sales. Their operations and facilities
increase and become more expensive
’Wheel of Retailing
3. They may move to better up market locations,
start carrying higher quality products or add
services and ultimately emerge as a high cost
price service retailer
4. By this time newer competitors as low price,
low margin, low status emerge and these
competitors too follow the same evolutionary
process
5. The wheel keeps on turning and department
stories, supermarkets, and mass merchandise
went through this cycles
Functions of a Retailer
 From the customer point of view, the retailer
serves him by providing the goods that he
needs in the required assortment, at the
required place and time
 From an economic standpoint, the role of a
retailer is to provide real added value or utility
to the customer
1. Form: The Form of a product that is acceptable to the
customer:
 The retailer does not supply raw material, but rather offers
finished goods and services in a form that customer wants
 The retailer performs the function of sorting goods and
providing an assortment of product in various categories
1. Time: He creates TIME utility by keeping the store open
when the consumers prefer to shop
 Preferable shopping hours
1. Place: By being available at a convenient location, he
creates Place utility
2. Ownership: Finally, when the product is sold, Ownership
utility is created
5. Arranging assortment: Manufacturers usually make one or a variety of
products and would like to sell their entire inventory to few buyers
to reduce costs. Final consumers, in contrast prefer a large variety
of goods and services to choose from and usually buy them in small
units
 Retailers are able to balance the demands of both sides, by collecting an
assortment of goods from different sources, buying them in sufficiently large
quantities and selling them to consumers in small units
6. Breaking Bulk: to reduce transportation costs, manufacturer and
wholesalers typically ship large cartons of the products, which are
then tailored by the retailers into smaller quantities to meet
individual consumption needs
7. Holding stock: Retailers maintain an inventory that
allows for instant availability of the product to the
consumers. It helps to keep prices stable and
enables the manufacture to regulate production.
8. Promotional support: small manufacturers can use
retailers to provide assistance with transport,
storage, advertising, and pre- payment of
merchandise
Major Type of Retail Stores
 There is no universally accepted method of
classifying retailer
 Various schemes have been proposed to
categories retailers based on
 Number of outlets
 Margin v/s turnover
 Location
 Size
 Because of overlap of classification criteria,
some stores may qualify as under two different
categories
1. General merchandise retailer: general merchandise
retailer carry a variety of product lines, with
considerable depth. Some major types of these
stores include supermarkets and
hypermarkets , discount stores and
department stores.
o Super market: A supermarket is a large self service retail
store that carries a wide variety of consumer products
under one roof , such as complete line of food products ,
laundry requirement, household maintenance items. In
India cooperative have managed some supermarkets for
quite sometime like super bazaar in Delhi, apna bazaar
shakari bhandar etc.
o Discount store: these stores are self service, standard
general merchandise retailers regularly offering brand
name and private brand items at low price, earn lower
margins and push for high sales turnover. The
characteristics of true discount stores include
 Selling products at discounted price
 Carry standard international , national, or store brand to build
image
 Self service stores to minimize operational costs
 Preferred store location are low rent areas.
Like best known discount store is Wal-Mart. In
India almost all retail stores offer discounts,
Subhiksha
o Department store: a department store is larger retail
store organized into several departments, offering a
broad verity and depth of product lines. The product
mix may include food products, appliances, clothing,
furnishing and other household goods.
 Like Pantaloons, shoppers’ stop,
 Department store only for kids is Kids Kemp.
 Fashion related department stores in India are Ebony,
Globus, pantaloons, lifestyles.
2. Specialty Stores: specialty stores carry a narrow product
mix with depth of assortment within the line.
 The emphasis is on a limited number of complimentary products
and high level of customer service
 Specialty store often sell shopping goods such as Jewelry,
apparel, computers, music systems, sporting goods.
 Like; Tanishq, Titan watches, Van Heusen, Raymond's.
3. Shopping Malls: shopping malls typically deal with several
bases and product categories and provide a large
variety of merchandise abs service. There are 96
operational malls in India and expected to grow 158 by
this current year.
 Ansal plaza (Delhi), Garuda mall (Bangalore) Sahara plaza
(Gurgaon), Spenser Plaza (Chennai)
4. Retail chains: a retail chain operates multiple
retail outlets under common ownership in
different cities and towns.

 To some extent the purchasing function and decision

making are coordinated or centralized.
 Like Westside, Globus, Food world, McDonald's retail
petrol outlets. Etc.
The Marketing: Retail Equation
Manufacturer Manufacturer Manufacturer

Wholesaler

Retailer

Retailer
Feedback

Consumer Consumer Consumer

Retailing in India
 Retail is the new buzzword in India.
 The global Retail development Index has ranked
India first, among the top 30 emerging markets in
the world.
 It is believed that India has the potential to
deliver the fastest growth over the next 50 years.
 While barter would be considered to be oldest
form of retail trade, since independence , retail in
India has evolved to support the unique needs of
country, given its size and complexity
 Second largest sector after Agriculture. Contributes about 10 – 11
% of the GDP
 The estimated size of the organized retail industry in India is Rs.
16,000 crores. This is 2 % of the total estimated retail trade.
 Indian Retail trade increased from Rs. 2200 billion in 2000 to Rs
3300 billion by the year 2005
 India's first true shopping mall – complete with food courts,
recreation facilities and large car parking space – was inaugurated
as lately as in 1999 in Mumbai. (this mall is called "Crossroads")
The Evolution of Retail in India
 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.
 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:

1. PDS: 463,000
2. Post offices: 160,000
3. KVIC: 7,000
4. CSD Stores:3,400

(source business world marketing White book 2005)

 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.
 The Evolution of Retail in India

Established Emerging
Traditional formats Formats
Formats Kirana shops Exclusive retail outlets
Itinerant Salesman Convenience/ Hypermarket
Haats department stores Internal retail
Melas PDS/ Malls / Specialty Malls
Mandis etc. fair price shops Multiplexes
Pan/ Beedi shops Fast food outlets
Service galleries
Drivers of Retail change in
India
Major drivers :
1. 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.
2. 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
3. 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.
o The changes in income brought about changes in the
aspirations and the spending patterns of the
consumers. the buying basket of the consumer
changed
4. The emergence of a young Earning India : Nearly 70% 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
Prominent Sector in Indian
Retail
1. Clothing, textiles and fashion Accessories:
2. Food & food Services:
3. Consumer Durables:
4. Books & Music:
Other emerging sectors
5. Jewellery retail
6. Footwear retail
7. Time Wear Retail
8. Fuel Retail/ petro retail
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.

Size of the Organized Retail
Market
2001-2002* 2007* CAGR (%)

Food 1800 7473 33

Clothing 4950 10423 16

Consumer 1650 3787 18

Durable

Books & Music 450 1426 26

Total 16000 37216 18

*Figs are in Rs. Cr.

Share of Organized &
Unorganized retail

PAKISTAN 1 99

INDIA 3 97

CHINA 20 80

INDONESIA 30 70

BRAZIL 36 64

THAILAND 40 60

MALASIA 55 45

TAIWAN 81 19

USA 85 15

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: Ernst &Young, The Great Indian Retail Story, 200

 Retail Trade: India, US & China
Trade Employment Shops Organised
($ bn) (%) (mn) sector share
(%)

India 180 7 12 3

China 360 12 2.7 20

US 3800 16 15.3 80