What is Retailing?
Retailing involves selling products and
services to consumers for their personal or
family use. Department stores, like
Burdines and Macy's, discount stores like
Wal-Mart and K-Mart, and specialty stores
like The Gap, Zales Jewelers and Toys 'R'
Us, are all examples of retail stores.
Service providers, like dentists, hotels and
hair salons, and on-line stores, like
Amazon.com, are also retailers.
Many businesses, like Home Depot, are
both wholesalers and retailers because
they sell to consumers and building
contractors. Other businesses, like The
Limited, are both manufactures and
retailers. Regardless of other functions
these businesses perform, they are still
retailers when they interact with the final
user of the product or service.
Retailers
Manufacturer
Distributors/Who
lesalers
Consumers
Why is Retailing Important?
As the final link between consumers and
manufacturers, retailers are a vital part of the business
world. Retailers add value to products by making it
easier for manufactures to sell and consumers to buy.
It would be very costly and time consuming for you to
locate, contact and make a purchase from the
manufacturer every time you wanted to buy a candy bar,
a sweater or a bar of soap. Similarly, it would be very
costly for the manufactures of these products to locate
and distribute them to consumers individually. By
bringing multitudes of manufacturers and consumers
together at a single point, retailers make it possible for
products to be sold, and, consequently, business to be
done.
Retailers also provide services that make it less risky
and more fun to buy products. They have salespeople
on hand who can answer questions, may offer credit,
and display products so that consumers know what is
available and can see it before buying. In addition,
retailers may provide many extra services, from
personal shopping to gift wrapping to delivery, that
increase the value of products and services to
consumers.
According to the National Retail Federation, 1 in 5
American workers are employed in the retail industry.
The Department of Labor estimates that since 1990,
700,000 new jobs have been created in the retail sector.
That's 13% of all new jobs in the United States. At
present, more jobs are provided in retailing than the
entire U.S. manufacturing sector.
The Future of Retailing
Advances in technology, like the Internet,
have helped make retailing an even more
challenging and exciting field in recent
years. The nature of the business and the
way retailing is done are currently
undergoing fundamental changes.
However, retailing in some form will
always be necessary. For example, even
though the Internet is beginning to make
it possible for manufacturers to sell
directly to consumers, the very vastness
of cyberspace will still make it very
difficult for a consumer to purchase every
product he or she uses directly. On-line
retailers, like Amazon.com, bring together
assortments of products for consumers to
buy in the same way that bricks-andmortar retailers do.
In addition, traditional retailers with
physical stores will continue to be
necessary. Of course, retailers who offer
personal services, like hair styling, will
need to have face-to-face interaction with
the consumer. But even with products,
consumers often want to see, touch and
try them before they buy. Or, they may
want products immediately and won't
want to wait for them to be shipped. Also,
and perhaps most importantly, in many
cases the experience of visiting the
retailer is an important part of the
purchase. Everything that the retailer can
do to make the shopping experience
pleasurable and fun can help ensure that
customers come back.
The organised retail segment in India is expected to
witness higher growth going forward due to the FDI
clearances in retailing, the changing consumer needs,
rise in young (15-49 years) and working women
population, and increase in nuclear families among
others. It is estimated that the young population is
likely to constitute 53.0% of the total population in
2020 and 46.5% of the population in 2050 - much
higher than countries like the US, the UK, Germany,
China17 etc.
Indias demographic scenario will turn to be more
favourable going forward due to the dominant young
population, which will most certainly drive retail sales
growth, especially in the organised retail segment, and
will boost the segment that is already on a high growth
trajectory. Even though the penetration of the
organised retailers is far lesser in India than in other
developed countries, the first-mover advantage that
the retail players enjoy will also attribute to the
sectors growth
Rural India, the emerging growth centre for
Indian retailers
The rural population dominates the Indian market with
over 720 million consumers (70% of the total
population) spread across 0.63 million villages in the
country18. Typically Indian rural retail stores are in the
form of haats and melas. Undeniably, the urban
market (metropolitan cities, tier II, III cities) offers
great opportunities to organised retailers but they are
anticipated to saturate in the near future. Hence, most
big retail companies are envisaging entering the
untapped rural market. For instance, ITC has taken a
rural initiative through Choupal Sagar and so has DCM
Hariyali Kisan Bazaars, and Pantaloons in a JV with
Godrej (Aadhars). Besides, several other Indian
companies are mulling over launching rural retail
brands to face the current economic slowdown, as
rural areas have been less affected by the slowdown.
and so has DCM Hariyali Kisan Bazaars, and
Pantaloons in a JV with Godrej (Aadhars). Besides,
several other Indian companies are mulling over
launching rural retail brands to face the current
economic slowdown, as rural areas have been less
affected by the slowdown.
Over the last couple of years there has been a spurt in
the rural income due to higher agricultural production,
as the total foodgrain production in India reached its
zenith at 230 million tonnes (MT) in FY08. The sharp
rise in the minimum support price (MSP) of wheat and
paddy in the past two years also left the farmers
richer. Farmers also accrued benefits from the
agricultural loan waiver, various development schemes
(the National Rural Employment Act, the Bharat
Nirman Programme for improving rural infrastructure).
These initiatives not only drove the rural peoples
income substantially but also increased their
consumption levels.
Furthermore, the growth of MPCE level in rural areas
has been higher than the urban areas. For example,
the percentage of population below the MPCE level19
of Rs 510 in rural areas was 54.4% in FY05, which
dipped to 39% in FY07, showing a growth of 15.4%;
on the other hand, the percentage of population in
urban areas below the MPCE level of Rs 930 was
56.1% in FY05, which dipped to 46.1% in FY07,
showing a growth rate of 10.0%.
According to Technopak estimates, the retail sector
revenue is pegged at US$ 590 billion by 2011-2012
and the organised retails share is projected to reach
16% (US$ 94.4 billion). In fact modern day retail
stores are expected to adapt and imbibe from the
traditional formatted stores.
Economic slowdown and the road ahead for
organised retailers
Tough times lie ahead for the retail industry as
consumers are holding on to their wallets due to job
losses, stock markets are volatile and chances of a
prolonged recession are increasing. Consumer
spending is likely to contract further as banks are
becoming overcautious in lending and are also
tightening their rules on the credit card issues. Thus
the retailers are witnessing an uphill task in terms of
wooing consumers, despite offering big discounts. Also
the organised retailers have been facing a difficult time
to wean away customers from traditional kirana stores,
especially in the food and grocery segment. The
organised retail segment has to adopt various best
practices to prevail in the current situation. They have
to offer more convenience in terms of superior logistics
and pricing or location. Moreover, inadequacies in the
existing retail infrastructure and logistics is also
denting the sectors growth. An efficient retail supply
chain is very critical for the retailers, particularly for
agri commodities. Baring few leading big retail
companies, the supply chain is not very efficient for
most of the small and medium retailers. Retailers can
therefore enhance their earnings by improving their
supply chain with appropriate expertise. They
therefore need to increase their investments in retail
ancillaries and retail logistics to restrict the fall in
margins. Moreover, many retailers are negotiating for
better credit terms, boosting their supply chain, cutting
inventories. Besides, few of them are even merging
their stores to counter the current slowdown in retail
sales.
Furthermore, in the liquidity crunch scenario, retail
companies have been expanding their brands with
minimum investments through the franchise route,
which has received a major thrust in the economic
downturn scenario. The franchise model constitutes
25-30% of the current organised retail pie, and is
expected to reach 45-50% in the next couple of years.
In view of the changing economic landscape, the
retailers are increasingly adopting measures to boost
their top line as well as their bottom line by
streamlining their existing supply chain, especially in
terms of inventory control and cost control, and are
also raising the share of private labels in the total
revenue map. Globally, private labels constitute around
17% of total sales and in India private labels constitute
10-12% of the organised sectors revenue20.
Henceforth, the Indian retail companies will be looking
at increasing the share of private labels from the
current rate to 20-40%. Private labels can act as the
saving grace for many retail companies since margins
in this range between 30-40%21.
Consumer sentiments will be in a recuperating stage in
the current year. As retail companies have not
achieved the expected sales till now, inventory is likely
to pile up and to get rid of this; companies are
expected to slash prices by mark down in
merchandise. For instance, in the fashion and
accessories category, the product cycle is very short
and retailers are expected to provide deep discounts to
consumers to clear the inventory pile-up.
Real estate experienced huge reduction in costs in the
third quarter of FY08 and to capitalise this opportunity,
they started expanding their stores to viable locations.
The companies are closing down their underperforming stores and are moving to viable areas to
curtail losses. The real estate costs are expected to
rise in the coming quarters due to expansion and
relocation plans of retail companies. Despite the
setbacks experienced this year, the retail sector is
likely to flourish in the coming years.
