OPPORTUNITIES AND CHALLENGES IN

RETAIL MANAGEMENT

BY :- SAURABH AGGARWAL &

ALAKH KUMAR NIRANJAN
INMANTEC BUSINESS SCHOOL

Background

Retailing consists of all activities involved in selling goods and services to consumers for their
personal, family, or household use. India is ranked as the third most attractive retail destination
among 30 emerging markets by the us-based global management consulting firm, A T Kearney in
its 9th annual global retail development index (GRDI) 2010.

Retailing is also the most emerging trends in India after agriculture sector. The multi-layer
retailing in India is the second-most decentralized economic activity after agriculture and
constitutes more than 95 per cent of trade, leaving the balance 5 per cent to organized trade.
Contributing to 14 per cent of the country's GDP (Indias GDP is 1.31 trillion usd that is inr 59
trillion in 2009-10), while the share of all the BSE-500 companies is less than 10 per cent, retail
sector is also the second-largest employment provider, next only to agriculture the growth in the
retail sector touched $350 billion in 2009 and is projected to reach $637 billion by 2015. As we
know that Indian retail is generally classified into organized retail and unorganized retail sector.
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. Unorganized retailing, on
the other hand, 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.

Traditionally, the retail market in India was largely

unorganized which share almost 90% of total workforces; however with
changing consumer preferences, organized retail is gradually becoming
popular. Organized retail, is projected to grow at a much faster pace of 40% p.a. to reach used
51 billion by 2010.(source:-Edelwiess).
In fact, last five years have been a roller coaster ride for organized retail in India.
The countrys top industrial houses Reliance industries , Tata group and Aditya Vikram Birla
group to name a few entered the space even as smaller aspirants made a beeline to find a toehold
in retailing too. Global giants Wal-Mart, Metro, Tesco & Carrefour made headlines in India. So,
if we see the future of organized retail, it is very bright. With the allowing of 100% FDI by
government in cash & carry wholesale retail, many foreign players are likely to invest in these
sectors as well as they also expecting to sell directly to end consumers through multi-brands
outlets. Global retail giants such as Carrefour, Wal-Mart and Tesco are desperate to tap into
India's booming economy, which has created new middle-class wealth in a nation of nearly 1.2
billion people. So, on the basis of the above facts & current scenarios, retail management is very
booming sector. The organized sector of retailing provides lots of opportunities in retail
management , yet there are still a lot of challenges.

Organized retail

The retail sector in India is highly fragmented with organized retail contributing to only 5% of
total retail sales.Organized retail in India in its old form, actually dates back to the pre-
independence times. Interestingly, it was South India that finally took a lead in formally setting
up the first organised retail chains in the food and grocery (F&G) segment in India, with stores
such as Nilgiris, Foodworld, Margin Free, etc. Even in the later years, retailing (not organised
retailing as we see today) was essentially dominated by manufacturers such as Bata , Bombay
Dyeing , The S Kumars group and the Raymond group to name a few. Mother dairy, kendriya
bhandar, super bazaar, etc, all made up the government initiatives.(sources:-
http://economictimes.indiatimes.com/news/news-by-industry/services/retailing/the-great-indian-tale-called-retail/articleshow/7193968.cms )

As we know that organized retail is nothing but a retail

place all the items are segregated and brought under one roof, unlike the unorganized retail
where there are different things are sold in different shops. It also aims to bring maximum of
different brands making the same type of product together. The following points for organized
Organized retail:-
retail in India will give the complete facts about its.

o India is at an early stage of evolution in organized retail, with its current

penetration being 5 per cent, which indicates a huge potential for growth.
o The share of organized retail in total indian retail trade is projected to grow at
40 per cent per annum.
o Organized retail formats including departmental stores, hypermarkets,
supermarkets and specialty stores are fast replacing traditional retail formats
such as stores (small mom-and-pop general stores) due to rising consumer
expectations
.

(SOURCE :- THE RETAILER, ERNST & YOUNG, JANUARY 2009; WORKING PAPER NO 222, IMPACT OF ORGANIZED
RETAILING ON THE UNORGANIZED SECTOR, ICRIER)
 Organized retail formats in India

If we discuss about the organized retail formats in

india , there are many big players in India both national & international players who are
specialised in their specific retail formats and can create a huge opportunities in retail
management.
Some of the different types of organized retail formats
with their description which can help in understanding of retail operations, store locations,
consumer behaviour, information systems, supply chain, marketing strategies ,etc are as follows:-

Formats Description Example

Hypermarkets Average size varies between 50,000 sqft and 100,000 sqft Spencers , big bazaar, etc
Offer a large basket of products ranging from grocery, fresh
& processed food, beauty and household products, clothing
& appliances, etc.

Average size 75,000 sq ft Carrefour, metro, wal-

Cash and-carry Offer several thousand stock-keeping units (SKUs) and mart,etc
generally have bulk buying requirements.

Departmental stores Average size varying between 10,000 sq ft and 60,000 sq ft Shoppers stores,
Offer a large layout with a wide merchandise mix, usually lifestyle,etc.
in cohesive categories including fashion accessories, gifts
and products for the home

Supermarkets Large in size and typical in layout Apna bazaar, food bazaar,
Offer not only household products but also food as in etc
integral parts of their services.
Shop-in-shop
Shops located within the premises of large shopping malls Infinity(mama group)
in major cities.
Speciality stores Single-category stores Brand factory, food bazaar
Focus on individuals and group clusters of the same class,
with high product loyalty

Category killers Average size 8,000 sq ft The loft(foot wear mall),

Large specialty retailers focusing on a particular segment, central(readymade garments
who are able to provide a wide range of choice to mall), etc
consumers, usually at affordable prices, due to the scale
they achieve

Discount stores Average size 1,000 sq ft Subhiksha, levis factory

Offer wide range of products, mostly branded, at discounted outlets , etc
prices

Convenience stores Average size 800 sq ft In & out , safal, etc

Relatively small retail stores located near residential areas

The following figure will show where India stands in organized retail
Sector.

Organized retail penetration in percentage

USA 85
France 80
Japan 66
Malaysia 55
Brazil 36
Russia 33
China 20
India 05
(source:- the retailer, ernst & young, january 2009; working paper no 222, impact of organized retailing on the unorganized sector, icrier)

Organized retail market share end 2010

Apparels / clothing 37%

Consumer durables 20%
Beverages 18%
Footwear 8%
Home decor 6%
Jewellery 6%
Books, musics & gifts 3%
Beauty & wellness 2%

Source:- http://india.retailmantra.com/2010/12/status-of-indian-retail-industry-dec.html

Organized retail penetration across categories (%)

 PERCENTAGE

FOOTWEAR
CLOTHING
BOOKS & MUSIC
JEWELRY & ACCCESSORY
DURABLES
HOME FURNISHING
MEDICAL SERVICES
FOOD & GROCERY
HEALTH & BEAUTY

Source: E&Y, the Great Indian Retail Story, 2006

As noticed in the figure above, the organized retail penetration

(ORP) is the highest in footwear with 22 per cent followed by clothing. Though food and grocery
account for largest share of retail spend by the consumer at about 76 per cent, only 1 per cent of
this market is in the organized sector. However, it has been estimated that this segment would
multiply five times taking the share of the organized market to 30 percent in the coming years.

Objectives

This case has basically two objectives.

First : to understand the current scenario of retail in India ,and

second: to discuss and insight about the opportunities & challenges in retail management.

Key drivers for the growth of retail management

The growth in the result of high footfalls in stores is enhancing that the consumers shopping
experience will continue to be the important factors . it is interesting to note that most of our
population is young and have high aspirations. To understand the psyche of this evolving indian
consumer and ensuring his needs are taken care of will be key driver for growth, said thomas
varghese , ceo, aditya birla retail

(source:-global retail majors may come to india in 11, the economics times:december 28,2010).

Some of the important drivers for the growth of retail in india are:-

1. Indian consumers:-

The Indian consumer has undergone a remarkable transformation. Just a

decade or two ago, the Indian consumer saved most of his income, purchased the bare necessities
and rarely indulged himself. Today, armed with a higher income, credit cards, exposure to the
shopping culture of the west and a desire to improve his standard of living, the Indian consumer
is spending like never before.

2. Pool of young generations:-

Indias has largest number of young populations in the world. Most

younger consumers have grown up with television, the internet, so they are highly exposed to
the standards of living and culture abroad. This generation is also making money at a younger
age and are ready to spend most, if not all of their income on apparel, accessories, and
electronics.

3. Higher incomes:-

The income of an average Indian is increasing and thus there is a

proportional increase in the purchasing power.

4. Urbanization:-

The urbanization is also important drivers of this sectors as the growing of

urbanization has affected the consumers psyche.a lots of malls & super markets are opened in
tier2 & tier 3 cities.

5. Infrastucture:-

The infrastucture is developing all round the countries .the real estate sector
is largely responsible for the growth of organized retail in india.
6.Internet & Technolgy :-

Another great factor is the internet revolution, which is allowing foreign

brands to understand Indian consumers and influence them before entering the market. Due to
the reach of media in the remotest of the markets, consumers are now aware of the global
products and it helps brands to build themselves faster in a new region .

7. Supply side factors:-

Supply side is also one of the important driving force for the growth of
organized retail sectors. Major restructuring of the manufacturing sector easing product supply
constraints for efficient retailing. Reduction in import duties- offering more global sourcing
options.

Challenges before the growth of retail management:-

After discussing the factors responsible for the growth of retails sectors , there are also a lots of
challenges before them. Some of the challenges which are facing by these sectors are:-

1. Corporate initiaves:-

The retailers in India have to learn the overall management of retailing that are
practised in other parts of world.they have to induce the new retail formats, enhance shopping
experience as well as to understand the regional customers attitudes to retailing.

2. Trained manpower:-

The retailing sectors are still facing the problems of trained manpower. These
sectors have shortage of trained manpower who can manage the retailing well and can
understand the peculiarities of Indian customers which make it a very unpredictable a lot.

3. Local vendors:-

The biggest challenges for the growth of retail management is local vendors
who are well expert in fulfilling the large section of lower class people demands.
4. Government regulations:-

This sector is still facing the problem of FDI(foreign direct investment) which is
very essential for growing of this sectors. The government has allowed only 51% FDI in direct
retailing & 100% FDI in cash-and-carry which prevents it to become fully flourished sectors.
Besides these, there is different structure of sales tax in different states.

5. Lack of proper understanding by public :-

There is lack of proper understanding by public & public groups about its
positive effects. There are no actions taken by media or government or intelligentia in order to
popularise or spread the goods & pros of this sectors.

6. Lack of good and reputed Institutes:-

In india, there is shortage of good & reputed institutes in retail management

which can provide the quality of knowledge and education at par with global standards.

Opportunities or Road ahead.........

The BMI India retail report for the first-quarter of 2011 forecasts that total retail sales will grow
from us$ 392.63 billion in 2011 to us$ 674.37 billion by 2014. Strong underlying economic
growth, population expansion, the increasing wealth of individuals and the rapid construction of
organized retail infrastructure are key factors behind the forecast growth in retail management.
With the expanding middle and upper class consumer base, there will also be opportunities in
India's tier ii and iii cities.

Mass grocery retail (MGR) sales in India are expected to undergo enormous growth over the
forecast period. BMI predicts that sales through MGR outlets will increase by 145 per cent to
reach us$ 21.35 billion by 2014.

According to a Mckinsey & company report titled 'the great Indian bazaar: organized retail
comes of age in India', organized retail in India is expected to increase from 5 per cent of the
total market in 2008 to 14 - 18 per cent of the total retail market and reach us$ 450 billion by
2015.
Furthermore, according to a report titled 'India organized retail market 2010', published by knight
frank India in may 2010 during 2010-12, around 55 million square feet (sq ft) of retail space
will be ready in Mumbai, National capital region (NCR), Bengaluru, Kolkata, Chennai,
Hyderabad and Pune. Besides, between 2010 and 2012, the organized retail real estate stock will
grow from the existing 41 million sq ft to 95 million sq ft.

Driven by the growth of organized retail coupled with changing consumer habits, food retail
sector in India is set to be more than double to us$ 150 billion by 2025, according to a report by
KPMG.

India's retail market is expected to be worth about us$ 410 billion, with 5 per cent of sales
through organized retail, meaning that the opportunity in India remains immense. Retail should
continue to grow rapidlyup to us$ 535 billion in 2013, with 10 per cent coming from
organized retail, reflecting a fast-growing middle class, demanding higher quality shopping
environments and stronger brands, according to the report expanding opportunities for global
retailers, released by A T Kearney.

Foreign direct investment (FDI) inflows between April 2000 and October 2010, in single-brand
retail trading, stood at us$ 197.04 million, according to the department of industrial policy and
promotion (DIPP).

Carrefour, the worlds second-largest retailer, has opened its first cash-and-carry store in
India in New Delhi. Germany-based wholesale company metro cash & carry (MCC)
opened its second wholesale centre at Uppal in Hyderabad, taking to its number to six in
the country.

Electronic retail chain major, next retail India, plans to open 400 showrooms across the
country during January-march 2011 increasing the total number of retail stores to 1,000
by the end of the fiscal year 2010-11.

Jewellery retail store chain Tanishq plans to open 15 new retail stores in various parts of
the country in the 2011-12 fiscal.

V mart retail ltd, a medium-sized hypermarket format retail chain, is set to open 40
outlets over the next three years, starting with 13 stores in 2011, in tier-ii and tier-iii
cities.

Reliance retail, the wholly owned subsidiary of Mukesh Ambani's reliance industries, is
set to open 150 stores by the end of march 2011 and double the number of stores across
the country in all formats within five years.

Future value retail, a future group venture, will take its hypermarket chain big bazaar to
smaller cities of Andhra Pradesh, with an investment of around us$ 1.54 million to us$
4.41 million depending on the size and format.

RPG-owned Spencer's retail plans to set up 15-20 new stores in the country in 2011-12.
 Spar hypermarkets, the global food retailing chain of the Dubai-based landmark group,
expects to start funding its India expansion beyond 2013 out of its local cash flow in the
country. So far, the landmark group has invested us$ 51.31 million in setting up five
hypermarkets and plans to pump in another us$ 51.31 million into the next phase of
expansion.

Leading watchmaker titan industries limited plans to invest about us$ 21.83 million for
opening 50 premium watch outlets Helios in next five years to attain a sales target of us$
87.31 million.

British high street retailer, Marks and Spencer (M&S) plans to significantly increase its
retail presence in India, targetting 50 stores in the next three years.

Spain's Inditex, Europe's largest clothing retailer opened the first store of its flagship zara
brand in India in June 2010. It further plans to open a total of five zara outlets in india.

Bharti retail, owner of easy day storesupermarkets and Hypermartsplans to invest

about us$ 2.5 billion over the next five years to add about 10 million sq ft of retail space
in the country by then, according to a company spokesperson.

Uk-based tesco will open its first store in india this year in partnership with the tata
groups retail arm trent ltd.

Its the right format for a country like India because (the country) has a large number of mom-
and-pop stores, hotels, restaurants and institutions, said Mediratta of Bharti Walmart. Its a
great model and we are bullish on this. India has an estimated 12 million mom-and-pop stores,
or neighbourhood retail shops that are a target for most of the wholesale stores, along with
hotels, restaurants and other businesses. (sources:-http:// livemint.com: january 03, 2011,
http://www.ibef.org/artdispview.aspx?in=63&art_id=27630&cat_id=376&page=2)

Conclusions

Thus we have seen that the retail management has very bright opportunities due to rapid
growth of retailing in india. If the government allow the 100% FDI in organized retail sectors ,
more & more giant retail players will invest in india to open their owned multi-outlets, hence it
create more & more opportunities for retail management specialists. Due to changing lifestyles
of Indian consumers as well as change in socio-cultural & economical conditions of india , the
Indian retail environment has been witnessing several changes. Though, there is still tough
competition from local vendors in unorganized retail sectors like kiranas stores, subji mandi,
paan-shops. Besides these, lack of good management institutes in these sector are also one of the
biggest challenges.
Bibiliography

1. Corporate catalyst India :- a report on Indian retail industry

2. Preparing for the future: changing regulatory environment by Vikas & Vasal

3. Global journal of business research volume 3 number 2 2009

Organized retailing in India- an empirical study of appropriate formats and expected trendsby
B.B. Goyal, Panjab University, Chandigarh, India& Meghna Aggarwal, Panjab University,
Chandigarh, India

4.Retail april 2010: ibef(indian brand equity foundation),

5. Organized retail inquilab in India , by Rahul & Rahil on retail

Websites
1. Http://economictimes.indiatimes.com/news/news-by-industry/services/retailing/the-great-
indian-tale-called-retail/articleshow/7193968.cms
2.http://www.ibef.org/artdispview.aspx?in=63&art_id=27630&cat_id=376&page=2
3. Http://www.articlesbase.com/marketing-articles/future-trends-of-retail-in-india-
1315969.html#ixzz1dimd70zw
4. Http://india.retailmantra.com/2010/12/status-of-indian-retail-industry-dec.html
5. Http://toostep.com/idea/challenges-of-organized-retail-in-india.