Emerging retail formats in india

Emerging retail formats in india Retailing has been defined as business activities involved in selling goods and services to consumers for their personal, family or household use (Berman and Evans, 2001). Although retailing has been around for millennia, the 20th century witnessed a lot of change in the retail sector, especially in the developed countries. Modern formats such as department stores, discount stores, supermarkets, convenience stores, fast food outlets, speciality stores, warehouse retailers and hypermarkets have emerged. Retailing has become more organized and chain stores have been growing at the expense of independent shops. The chains are utilizing sophisticated information technology and communication to manage their operations and have grown rapidly not only within their home countries like US, UK, France, Germany and Holland but to other developed countries. Walmart Stores, the US retailer, was recognized as the largest firm in terms of sales in 2002 in Fortune magazines list of 500 largest globa l firms. Modern retail formats have also spread beyond developed countries and are becoming more important in the NICs and developing countries. 3 The emergence of new formats and the evolution of modern retail in India has attracted attention in recent years. The business press in India has carried several articles and news items in the last three years about the modern formats (Shukla 2001; Anand Rajshekhar, 2001; Bhattacharjee, 2001). The consulting firm KSA Technopak has organized retail meetings or summits in major metros which have witnessed participation from major domestic and international retailers, and also from manufacturers. Venugopal (2001), has discussed the census studies of retail outlets that the market research firm ORG MARG conducted in the 1990s. This census provided data and estimates on a number of parameters relating to Indian retail such as number and type of outlets and growth of outlets over time separately for urban and rural areas. Due to these reports and activities, there is good deal of information available about what is happening in Indian retail. However Indian retailing has received sparse a ttention by way of academic research with the exception of a few articles in academic journals and some case studies. Purpose of the study. The purpose of this report is to develop an understanding of the factors influencing the evolution of modern formats in Indian retailing Objective of the study The report investigates modern retail developments and growth of modern formats in this country. The challenges and opportunities available to the retailers to succeed in this country. Literature review: Indian retailing is undergoing a process of evolution and is poised to undergo dramatic transformation. The retail sector employs over 8% of the national workforce but is characterized by a high degree of fragmentation with over 5 million outlets, 96% of whom are very small with an area of less than 50 m2 (Aggarwal, 2000). The retail universe more than doubled between 1978 and 1996 and the number of outlets per 1000 people at an All India level, increased from 3.7 in 1978 to 5.6 in 1996. For the urban sector alone, the shop density increased from 4 per 1000 people in 1978 to 7.6 per 1000 people in 1996 (Venugopal, 2001). Because of their small size, Indian retailers have very little bargaining power with manufacturers and perform only a few of the flows in marketing channels unlike in the case of retailers in developed countries, ( Sarma , 2000). The corner grocer or the kirana store is a key element in the retail in India due to the housewifes unwillingness to go long distances for purchasing daily needs. An empirical study was carried out by Sinha et al ( 2002) to identify factors that influenced consumers choice of a store. Although convenience and merchandise were the two most important reasons for choosing a store, the choice criteria varied across product categories. Convenience was indicated by consumers as the most important reason in the choice of groceries and fruit outlets, chemists and lifestyle items while merchandise was indicated as the most important in durables, books and apparel. The traditional formats like hawkers, grocers and paan shops co exist with modern formats like supermarkets, and non store retailing channels such as multi level marketing and teleshopping. Example of modern formats include department stores like Akbarallys , supermarkets like Food World, franchise stores like Van Heusen and Lee, discount stores like Subhiksha, shop-in-shops, factory outlets and service retailers ( Nathan , 2001). Modern stores tend to be larger, carry more stock keeping units have a self service format and an experiential ambience. Modern formats also tend to have higher levels of sales per unit of space, stock turnover and gross margin but lower levels of net margin as compared to traditional formats (Radhakrishnan, 2003). Modernisation in retail formats is likely to happen quicker in categories like Dry groceries, electronics, Mens apparel, Books, Music. Some reshaping and adaptation my also happen in Fresh groceries, Womens apparel, fast food, and personal care p roducts (Fernandes et al, 2000). In recent years, there has been a slow spread of retail chains in some formats like supermarkets, department stores, malls and discount stores. Factors facilitating the spread of chains are the availability of quality products at lower prices, improved shopping standards, convenient shopping and display, and blending of shopping withentertainment, and the entry of industrial houses like Goenkas, Rahejas, Piramals and Tatas into retailing ( Ramaswamy and Namakumari, 2002). However formats are not easily scalable across the country. Several companies have found that it is not easy to expand beyond some regions and cities as evident from the examples of Margin Free Market and Foodworld, which are active only in a few states or cities. Affordable real estate prices and availability of sufficient number of economically well off households in the catchment area are critical requirements that will determine new store viability and thus the possibility of further expansion (Anand and Rajashekhar, 2001). According to Rao (2001), foreign direct investment in the retail sector in India, although not yet permitted by government, is desirable, as it would improve productivity and increase competitiveness. New stores will introduce efficiency. Customers also gain as prices in the new stores tend to be lower. The consequences of modernization in India may be somewhat different due to lower purchasing power and the new stores may cater to only to branded products aimed at upper income segments. However it will be wise for old style stores to join together into wholesale and retail groups to improve bargaining power as experience in developed markets such as UK has shown that the modernization in retail has led to the decline of independent mom and pop stores. The need for a fresh perspective while developing theories to explain the new developments has been stressed by Bennett et al (1998). The Indian retail environment is witnessing several changes on the demand side due to increased per capita income, changing lifestyle and increased product availability. Experience of retailing in US shows that existing theories of retail development based on changing consumer needs, are inadequate to explain new developments. In developed markets, there has been a power shift with power moving from manufacturers towards retailers. The strategies used by retailers to wrest power include the development of retailers own brands, and the introduction of slotting allowances which necessitate payments by manufacturers to retailers for providing shelf space for new products. Retailers have also used technology effectively to obtain usable information about consumer buying patterns. The increased power of retailers has led to the introduction of new tactics b y manufacturers such as everyday low pricing, partnerships with retailers and increased use of direct marketing methods. Because of these issues, a supply side perspective needs to be fused with the demand side in developing theories for explaining modernization in retail. Research design: In order to fulfill the objectives of the study primary as well as secondary data have been collected to analyze the trends in modern retail formats meticulously. To analyze the emerging trends in shoppers behavior 30 shop keepers from 6 Malls operating in Ahmedabad will be interviewed. And for the rest part of the country secondary data published by different research institutions like TSMG, CSSO, Future Group, NCAER etc have been considered to draw the key inferences.