A Comparative Study of Retailing in India Essay

BACKGROUND correspond to AT Kearney, Indias sell industry comprises US$ 435 billion. It entails whole 6 per penny of itself as organised sell segment as of 2010, agree to Booz and Co (India) Pvt Ltd. Hence, thither is a great potential to be explored by domestic and irrelevant hoydeners, especially after(prenominal) Cabinets decision to relinquish up to 51% external convey pullment (FDI) in multi- plaza run sell arna and 100% FDI in single-brand sell. (Why India is a cosmic commercialise refer page 23, Annexure) The crease Monitor supra bailiwick (BMI) India sell production line relationship for the champion- reap-quarter of 2011 visualizes that the total retail sales depart grow from US$ 411.28 billion in 2011 to US$ 804.06 billion by 2015. The describe has underlined factors identical economic harvesting, population amplification, increase wealth of individuals and rapid construction of form retail radical as study drivers for the optimistic f oretell figures. (Refer Annexure, fig 2) h beef uponize to a research report named Retail Sector in India by investigate and marketplaces, Indian retail vault of heaven ac finds for 22 per cent of the countrys receipts domestic carre intravenous feeding (GDP) and contri exclusivelyes to 8 per cent of the total employment.FDI in single-brand retail presently is 0.03% of cumulative FDI of roughly $149 billion from April cc0 to family 2011. The announcement is expected to generate 10 million jobs all e actuallywhere triplet age, without impacting depleteder and domestic retailers. FDI in retail leave alone leave behind the farming community a all overbold upkeep by investment in good farming practices and providing them with recrudesce be. The international players entrust scram a sophisticated front-end that gain out boost investment in base of operations by retail players, third-party cater- concatenation companies and the administration. This leave alo ne improve efficiencies in the supply chain, cut wastage, increase efficiency and bring down consumer bells.India has been ranked as the quartetteth most veryiseive nation for retail investment among 30 emerging markets by the US-based worldwide management consulting sign of the zodiac, A T Kearney, in its world-wide Retailontogenesis Index (GRDI) 2011. Indias MGR (Mass Grocery Retail) sector remains dominated by small(a) traditional retail in timets. either four key late formats (supermarkets, hypermarkets, convenience and entailment w atomic chassis 18housings) be already present within Indias MGR market alone these stock certificates argon for the most part conk outd by a handful of topical anaesthetic anesthetic retailers. Structure of Indias MGR market till 2010 (Estimated quash of Outlets fig3, Sales by Format fig4) is given up in Annexure. collaborative regulate for international products Joint chances (JVs) ar emerging as the preferred model for new entrants, wherein foreign players leverage the cognition of the local player and focus on key issues much(prenominal)(prenominal) as fiber, pricing, promotions and brand management. Key examples include the Bharti assemblages JV with Wal-Mart for retail in the Indian market.MGR sales growth for 2011 = +19.7% compound yearbook average growth rate to 2015 = +17.6% (Refer Annexure soma 5) Increased exposure to westerly purpose habits has fuelled consumerism in developed and emerging Asia. pie-eyed consumers in major(ip) towns and cities turn to ground to-doing formats in search of the convenience and quality that they today desire and can increasingly afford. A spate of international retailers be planning to enter and expand their trading operations in India after the reforms recruitd in the FDI polity in retail sector, like Walmart, join Colors of Benetton (UCB), Da Milano.According to a report by research firm CB Richard Ellis India, oer 6 million straight gi ftt of retail mall space was added crossways India in the rootage six months of 2011 (Refer Annexure build 6) primarily due to combative expansion by organise retailers. The potential cities which atomic number 18 good for entering ar given in Annexure Fig 7. Cumulative foreign direct investment (FDI) inf haplesss in single-brand retail trading during April 2000 to June 2011 stood at US$ 69.26 million, according to the Department of Industrial Policy and advancement (DIPP). There atomic number 18 a hooking of incoming modes to enter a country, here India. (Refer Annexure Fig 8) And likewise refer to the growth trend that was observed quarterly in India, decease year. (Refer Annexure Fig 13)BHARTI-WALMARTIndia is a outlay sensitive market and in that respectfore we result be devising ourstrategy for her very care wide-cutyRetailing is like a game of three dimensional cheating where we operate as a local, regional and global player, so depending on the aim of the market we shall change our format and adapt. fast one B Menzer, President and CEO, Wal-Mart International. 5050 correlative venture In India, Wal-Mart has a 5050 joint venture with Bharti Enterprises in the wholesale cash-and- induct a bun in the oven segment, since 2007, under the brand Best damage neo sweeping. Total retail units as of October 31, 2011 9Best Price Modern wholesale 9Associates 3,372These come ins go for been undefendable in Amritsar, Zirakpur (Near Chandigarh), Ja buckhar, Kota, Bhopal, Ludhiana, Raipur and Indore. The JV in India expects to open 10 to 12 new Best Price Modern Wholesale lines and employ most 3,000 4,000 pot by end of 2011. On 16 Sept11, it opened its prototypalborn Best Price Modern Wholesale cash-and-carry insert at Nidamanuru, matter blueway-5 in Vijayawada, Andhra Pradesh. New outlet entrust also confine a Mera Kirana political programme sharing surpass practices such as various aspects of using low- tolld modern techniq ues and shapees such as assortment planning, layout and fixtures, displays, backroom, licenses, prophylactic fodder handling, node retention and nurture added services with small and medium retailers. On 30 Sept11, it opened a new store format, Easyday Hyper, at attracter Malls, Bhandup, Mumbai.Currently, the keep lodge has cxl aristocraticday stores, 13 easyday Market outlets and 1 easyday Hyper store. Advantage of Wholesale cash-and-carry These benefit retailers as it is a is a one-stop glom that meets the day-to-day charters of eating place owners, hoteliers, caterers, fruit and ve swallowable resellers, kiranas, a nonher(prenominal) retail store owners, offices and institutions. to a greater extent than 90 share of these goods and services are being sourced locally thereby aiding keep approachs to a stripped-down, adding to the growth of the local providence and creating job opportunities, with the cash and carry store directly employing more than 200 local deal.A typical wholesale cash-and carry facility allow stand betwixt 50,000 and 100,000 square feet. The joint venture full treatment with the existing supply chain infrastructure to help make it more in force(p), thereby maximizing value forsodbusters and manufacturers and retailers. The supply chain operation supports farmers and small manufacturers who drive home bound infrastructure and distribution strength and help minimize wastage, particularly of fresh foods and vegetables. An efficient supply chain can play an important role in transforming farmers and small manufacturers into winning entrepreneurs. proficient Collaboration Walmart provides accredited technical support to Bharti Retail for its front-end retail venture where Bharti Retail requires critical retail technology and technical know-how. Walmarts remove Farm programme Multinational retail giant, Wal-Marts Direct Farm Program in India is a partnership with cx small and marginal farmers ascend Ludhiana in Punjab where it encourages husbandry of safe, high-quality, seasonal vegetables. sodbusters are counsel at each stage of cultivation by battlefield agronomists.Farmers learn nigh nursery management, transplanting, nutrient management, as well as harvest and post-harvest practices. Sourcing from India Walmart has been sourcing a signifier of products from suppliers in India for more than 20 years. Walmarts office in Bangalore serves as Walmarts Global Procurement (GP) hub for the sourcing of merchandise from India and Sri Lanka to Walmart stores and surface-to-air missiles Clubs globally. GP India also manages Global Procurement from Sri Lanka. Major categories sourced from India include root word textiles (including towels, shower curtains, bath mats, etc.), apparel (including woven, knitwear and strap footwear), leather accessories, fine jewelry and preindication wares (like fine dining ware, home dcor, etc). The main categories sourced from Sri Lanka are apparel, text iles and gifts. Launch of its world-class store in India, 2009 The reason for Wal-Marts entry in India was clear The Indian middle class, on which it had been calculateing for rough twain years.Mom-and-pop stores (or the Kiryana stores) and traditional distribution net campaigns dominated the Indian retail market. Wal-Marts first outlet was make out to ground in the city of Amritsar, Punjab in North India. The first store air-conditioned and built everyplace 50,000 sq. ft. was on the outskirts of the city, Amritsar. The store employed 200 locals and was probable create 500 collateral jobs. In the first few weeks itself, the compevery had managed to sign on close to 35,000 members. formulation Center Bharti Wal-Mart has opened a teaching centre in Delhi to bridge the initiative between demand and supply of clever man ply in modern retail. It will provide free retail sector-focussed vocational training to candidates.Amemorandum of symmetry (MoA) was signed in this regard on July 2211 between Bharti Wal-Mart and the Delhi governances Department of Training and Technical Education. Bharti-Walmart plans to invest over USD 15 mn in Andhra Pradesh this year and impact lives of 25,000 women through and through and through multiple initiatives by 2016, it has already created more than 2,000 job-ready women in 3 years through Bharti Walmart Training Centres. Walmart Labs in Bangalore In assenting to its R&D centre in the Silicon Valley, Wal-Mart plans to align up another(prenominal) facility in Bangalore, India (expected to be set up by Dec 2011) with to the highest degree 100 developers to work on technologies and solutions for Wal-Marts global e-commerce business.UNITED COLORS OF BENETTONThe Benetton Group, with brands such as UCB, Sisley and Playlife, has a mien in 120 countries. It has network of some 6,000 stores. India has a local production of their collection too. closely 100 per cent of the products are sourced from India. The product line remains uniform geographically. At present Benetton has over 425 franchised stores in India (since 1991) and the number is likely to double in basketball team years. Now it is also focusing on littler cities and towns given the growth in brand awareness and disposable income levels. as yet if FDI in single brand retail is opened up, we will continue to operate like a wholesaler and accompany the franchise route, Mr Mohanty (Benetton India MD) said. It has launched its first Concept store in Connaught Place.Stores are an important conversation platform for Benetton as it is here that we suit the depth of our brand put outing to the customers. The launch of the new store strengthens Benettons presence in the Indian market. Global brands work everywhere. Consumers currently are very global as they are accepting products that have global appeal. In fact, it has always positioned itself as a colorful brand which has worked wonders for the Indian market. Also it focuses more on con sumer get like store ambience and window merchandising rather than advertising.Almost 40% of our budget is spent on that. However, it is now sense of smell at in-film placements as the next branding strategy. (It has already tied up with an upcoming John Abraham movie 1-800-Love.) It is looking forward to being c dispensehing partners of programmesor events, which are true to their product. Recently, this Italian perfunctory wear brand opened an outlet at Magneto Mall, Raipur. Spread over an area of 1,000 sq ft, the store stocks a send of clothes and accessories for men and women. The retailer has a revenue-sharing model with the mall.DA MILANODa Milano, the international luxury brand with its range of agiotage leather goods and accessories is synonymous to precision, craftsmanship and exclusivity. Da Milano imports 70% of its leather and accessories from Italy for its leather goods retailed in India. It has 2 state of the art company owned manufacturing units at Nalagarh in Himachal Pradesh provide with the latest and most advanced machinery. They have a highly skilled workforce operating under the guidance of Italian technicians. They also have an exclusive tannery near Chennai in TN where leather produced is benchmarked to the latest process technology. By family11, it has 32 jot Da Milano stores across the country. It of late opened 5 flagship stores in Maharashtra. The brands presence can be searchn in 10 cities Delhi, Gurgaon, Noida, Jaipur, Chandigarh, Mumbai, Pune, Hyderabad, Chennai and Kolkata.Recently it opened its salesroom at Terminal 3 of Indira Gandhi International Airport in Delhi. The store is sprawled over 850sq.ft and is embellished with all-glass frontage. The appealing visual merchandising of the store also includes an off white backdrop, wooden shelves, soft green wall paper, light marble flooring etc, and is beginnere to captivate passers-by and draw footfall. The luxury brand could before long be seen announcing the la unch of two of its submarine sandwich brands Rosso Brunello and Da Milano habitation. While the former will unfold premium hi dash foot wears for men and women, the latter will be offering leather accessories for home and office. Rosso Brunello foot wears will be do available at select Da Milano exclusive stores, while Da Milano Home and Office accessories would be retailed at Da Milano stores.Well, a lot of scope is there in India as compared to other countries in the world as the organized retail penetration level is only around 5% as compared to 85% in USA, 80% in France and 20% in China. (Refer Annexure Fig 9)PROBLEMATIC SITUATION/ bother FACED IN INTERNATIONAL operationsPrice issue In India the mass of retail outlets sell products at maximal retail price (MRP), which are administered by the government and printed on each breaker point by manufacturers. Thus, there is borderline price competition among the various store formats. The reaching of International retailers, with vast sourcing networks, may prohibit the importance of government-imposed MRP, as these are likely to focus strongly on low prices as a competitive marionette and as a means of load-bearing(a) new consumers to try the modern concept. deplorable pedestal The highway infrastructure is unforesightful and federal and state taxation laws are complex, which make cross-state enthrallation difficult. Indias transport networks/highways, rural infrastructure certainly exact investment. Bharti has announced to invest INR 125bn in farming and supply chain. It will also invest on specific distribution and pane storage solutions (ie refrigerated trucks and logistical initiatives, such as electronic product tracking).The relatively slow pace of MGR growth in India can be largely attributed to two key factors (1) massive income inequalities and (2) tough FDI regulations ride displacement issue in India The entry of International retailers with efficient systems will extirpate the traditional retail sector, making peoples indispensableness at minimum in these new retail stores. personal credit line losing fear If we assume 40 mn adults in the retail sector, it would translate into around 160 mn dependents using a 14 dependency ratio. These people are unlikely suitable for other areas of work either. Thus, there is a need to enact new laws to check the fat expansion of the new foreign malls and hypermarkets, like China, Malaysia and Thailand. (Refer Annexure Fig 12 to see the Asia peaceable Retail Sales by % share) qualify in Retail FDI policy On November 24th the coalition government, led by the Congress party, said that in cities of over 1m folk, foreign firms could now own 51% of multi-brand retailers, such as supermarkets (up from zero), and 100% of single-brand arrange (up from 51%).Multi-brand foreign chains, such as Walmart and Tesco, must operate as joint ventures, of which they may now own up to 51%, and may operate only in cities of 1m people or more. The new reform is timely. Growth has dipped under 7%. The rupee is weak, investors are nervous. plainly still, thegovernment needs to lift confidence, and organized retail could work. (Refer to Annexure Fig 10 to see the Indian economic activity wake the nominal GDP and GDP per capita.) political issues The FDI reform is too controversial to be enacted. The main opposition party, the BJP, which enjoys the support of millions of stallholders, is doing its best to whip up anger. Many Indians feel an emotional attachment to little kirana stores, and squabble that foreign invaders will destroy them.Indian states are not obliged to get hitched with the FDI reform. Many may refuse to liberalize foreign self-control on their territory. well-worn Chartered Bank, reckons that of 53 cities with over 1m people, 28 are run by politicians who imagine they will block the reform. Indias left-wing parties had called for a nationwide strike on Dec. 1 in solidarity with the Confed eration of All India Traders, who are among the most vocal opponents of full FDI in retail. The BJP leader Uma Bharti publicly threatened to set fire to any Walmart that opens. Fragmented Market The retail shops are very fragmented with only very few supermarkets and no dominant chain. gardening is also fragmented. A rickety reasoned system makes it hard to enforce contracts. down the stairs the latest FDI reform, foreign-controlled shops will have to corrupt a chunk of their processed and make goods from small firms, which may add to their costs. High Land prices in India Foreign retailers will have to pose affordable land in jammed and costly cities. westboundern luxury-goods firms may be able to comport extortionate rents for central locations.Some may prosper with a few distant stores that people visit infrequently, spending lots. provided general retailers need both garish land and proximity to their customersnot an easy mix. Peoples habits Indians are in the habit of obtain for their fruits and vegetables almost every day which get the customer into the shop every day, and chances are shell buy something extra. construct a Walmart-style supply chain of fruits and vegetables requires a lot of investment in change the productivity and quality of farmers. E.g. showe a tomato farmer how to improve his yields by using wooden s opts for his plants. That farmer doesnt have to sell his tomatoes to Walmart, but when he sees that he can get a better price, he a good deal does. To woo farmers away from the system they are used to selling produce at the local mandi, or market, at a price dictated by traders Walmart has set itself a target of increasing farmers incomes by 20% over five years.Farmers Income Bylaw, farmers are postulate to sell their produce only to authorize mandis and have to pay the mandi taxes. (Walmart has to pay the mandi tax even when farmers sell to them.) They travel for hours to get here, and then take whatever price the wholesale buyer is willing to give. The buyers dont inspect the produce and offer better prices for better quality they save sell the 100-kg sacks of vegetables to another set of middlemen, who break it into smaller lots that eventually find their way to vegetable vendors and small retailers. By the time it reaches the consumer, that produce will have been marked up by three to four times or more, but nearly all of that goes to the middlemen, not the farmer. Meanwhile, about 30% of the produce also spoils on the way for lack of cold storage, add to Indias soaring food inflation. dispersion issue remains a major challenge to retail expansion. Indias infrastructure is a lot inadequate.A 500km road journey can take as much as 24 hours, owing to poor road conditions, congestion and ships bell booths. Preference for Kirana/local retailers (cheap price offered) According to ASSOCHAMs survey 2010, in which it referenceed 5000 shoppers in various cities in India, kirana stores (mom an d pop stores) and local retailers were the preferred destination for shoppers as compared to shop malls. The survey found that goods were less expensive (as much as 25%) in local kirana stores as compared to grown obtain malls with more variety and affordable options with sustainable quality at a transferrable price (reduced margins) Walmarts strict amalgamation policy The companys clear defined anti-union policy aiming at preventing its work force from gaining collective negociate power can result in increase wages.Low overhead costs elegant retailers in India already operate with such low overhead costs (by relying on informal labor and making minimal investment in any technology, even refrigeration) that its hard for Walmart to compete with them. (Indias traders have, however, invested in their relationships with state and local politicians, who count on their support around alternative time.) Elsewhere, Walmart may have pioneered the use of low-cost retail labor in India, the cost of labor in retail is already about as low as it can get.STRATEGY ADOPTED TO dethaw THE ISSUEIssuing Loyalty separate Keeping customers loyal is a conundrum retailers often grapple with. Over the last decade, Indian companies that are focusing on acquiring and haveing customers have become aggressive about giving out obedience cards. As a result, 42 per centum of Indians in the SEC A, B and C categories are now part of at least one committal program in Indias $4 billion-a-year loyalty market. (This figure includes the market for gifts, which a lot of companies use as a surrogate for loyalty programs.) Loyalty is seen as the number one tool that allows retailers to access information on customer tastes and preferences. Pearson conducted an extensive customer research through Colloquy, its research arm only 20 percent of Indians in the SEC A, B and C categories are loyal to a particular brand. carry a better deal and they are more than willing to shift.Improving In frastructure Tesco is planning to work with Tatas unity Bazaar hypermarket business on a franchise basis, providing expertise and technical support in return for a fee to the fast-expanding network. Star Bazaar stores, potentially centre that Tesco-branded private-label goods could appear in consumer retail outlets in India. It provides employment for some 3,000 local workers at its global service centre in Bangalore. More Partnership Wal-Mart is also considering a partnership with Indian counterpart future Group to strengthen its presence in India. Also, Walmart is on an expanding spree in India and wants to dawn maximum areas in India, even the interior(a) regions.Recently, it opened a new store format, easyday Hyper, at Magnet Malls, Bhandup, Mumbai. This is Bharti Retails first store in West India. Spread over 60,000 sq.ft., the outlet stocks over 20,000 products displaying 475 new items, including personal care products, stationery, family articles, hosiery items and dail y-need groceries. Introduction of Innovative ideas Walmart is also introducing innovating ideas to differentiate it from other retailers, like the recently opened store also has a section called Baby World. Currently, the company has 140 easyday stores, 13 easyday Market outlets and 1 easyday Hyper store. wad approach strategy Walmart follows a cluster approach strategy and initially largely focused on Punjab, although it opened stores in other places also. It has covered the four big markets (in Punjab) already. Pricesettling Government of India should introduce the concept for the organized retail by setting a minimum price for a commodity, below which a retail store cannot sale the product. This should be through with(p) to avoid the occurrence of monopoly of a retailer in the country. Personalized Offer to client The current retailers in India should take an advantage of the prior knowledge of the customer requirement and customer nature in India. They should provide customiz ed deals and service to them, so that they may retain the old customers even on the spread up of new international retail stores whose service is not change.LESSONS LEARNTClearly, once the fair play caps on foreign investment are lifted, the India MGR sector will witness horrific flows of investment from global retailers, which leads to our projection of 155.6% in MGR sales to 2015. Its retail market is forecast to nearly double to $850 billion by 2020. (Refer to Annexure Fig 11 to see the forecast for 2020 in terms of sales in organized and unorganized retail market.) Also, when a retailer (say Walmart) enters a new market, a lot depends on the kind of a partner it has. As Bharti itself has ambitions to be a major retail powerhouse in India, hence there is a strategical conflict between their interests. As, sooner or later India will permit foreign retailers to have direct equity ownership in India, then what will Walmart be left holding? Bharti has retail ambitions, thus it will want to buy Walmarts shares, rather than sell. Bharti-Walmart stores are branded BestPrice, and not with Walmarts name.Thus, Walmart could have thought of India as a portfolio of regional markets and work with smaller regional partners. Its hard for the local kiryana stores, etc. to have much bargaining power or have national ambitions. They would have been happy to brand them as Walmart and when regulations change, Walmart would be able to buy them out. Walmart India likely will invest in a joint venture with Kishore Biyani-led Future Group soon. The report is not confirmed yet. On Tuesday (March 2911), a leading business daily in India reported that elder executives of Future Group and Walmart had met at least five times in four months, raising possibilities of an alliance. More important, the debate over Walmarts effect on retail employment misses a larger point. In India, the majority of the population is employed in agriculture, and Indian farmers stand to gain a lot from greater investment by anyone foreign ordomestic in the supply chain that brings food from the field to the consumer. CRISIL, a research firm, reckons the reform could attract up to $3 billion of foreign investment over five yearswelcome, but not nearly plenteous to fund Indias current-account deficit or transform the industry.Indias consumer-goods firms, among its most profitable, have thrived in the era of backward sell and supply chains, but are wager on gradual change. The biggest, Hindustan Unilever, has seconded staff to stores in America and Britain to learn how they work. In an interview earlier this year its boss, Nitin Paranjpe, said he was absolutely certain that rganized retail would take off. But he reckoned it would take a decade to capture a quarter of the market. Entering a market as big and complex as Indias is a big bet, even for experience international retailers. Success is by no means guaranteed citing example of China, where Tescos Chinese operations are only rift even though they have been in the country for seven years. Walmart is doing better, but this was helped by its takeover of Trustmart, a Taiwanese supermarket. crossover and Auchan, two French supermarket chains, are doing best, because they vary more than their rivals to the taste of the Chinese and their shopping preferences, says Ben Cavender at China Market inquiry in Shanghai. Carrefour, for instance, introduced what is known as awry(p) markets in most of its outlets open food markets that sell live animals. To be successful in India, Walmart, Carrefour and Tesco will need to give their local managers a lot of autonomy to adapt their stores. India boasts more than 20 official languages, three major religions and many, very different culinary traditions.Big Bazaar, one of the few Indian hypermarket chains, shows how far such adaptation will have to go. preferably of copying the narrow aisles in occidental stores, designed for individual shoppers with carts, the fi rm has packed its stores with clusters through which shoppers have to navigate. This recreates the organised topsy-turvyness Indians know from shopping in real bazaars bumping into people, chatting and eating. All these international retail shops offer a wider variety and larger sum of money of some items, but lacked the personal touch. They do not have the quality of personalized touch that a normal Kiryana store offers to its customers, thus it will take a long way to establish the retail market in India, but the detention is for the final say by the government of India.REFERENCEwww.walmartstores.comhttp//www.ey.com/IN/en/Newsroom/News-releases/Published-editorialFDI-in-retailMNC-retailers-to-select-partners-with-suitable-capabilitiesFDI in Indias Retail Sector More Bad than Good? By Mohan Guruswamy, Kamal Sharma, Jeevan Prakash Mohanty, doubting Thomas J. Korahhttp//business.in.com/article/magazine-extra/walmarts-strategy-through-the-world/6042/1ixzz1fpdJwzydwww.indiaretailin g.comhttp//business.in.com/article/web-special/loyalty-networks-poised-to-enter-indian-market/30972/1ixzz1fpikaw00 http//www.ibef.org/download/Retail_270111.pdfhttp//retail.franchiseindia.com/interviews/Debutant/Bagging-profits-59/ Issue 37 September 2011 http//www.dnb.co.in/Ind_cursorpdf/Industry_Cursor_September_2011.pdf http//www.ramms.co.in/admin/application/source/files/news/39_RRN-Sept%202011.pdf FDI in retail MNC retailers to select partners with suitable capabilities stinting Times By Paresh Parekh, Tax Partner, Ernst & materialization