WHAT LIES IN STORE FOR THE RETAILING INDUSTRY

IN INDIA?*

CASE ON :

RETAIL INDUSTRY IN INDIA:

Ques 1. Identify the opportunities & threats that the retailing industry in India offers to local & foreign companies.

Environment threat and opportunity profile (ETOP) for a Retail industry in India :ENVIRONMENTAL SECTORS

NATURE OF IMPACT

IMPACT OF EACH SECTOR

ECONOMIC FAVOURABLE

The Indian consumers behavior pattern has changed. Now the Indian consumer gets more hefty pay- packages, is younger, a large number of women are working, western influences, and more disposable income have opened a lot of opportunities in Indian organized retail sector. The Indian consumer wants to shop, eat and get entertainment in one place and is have given Indian organized retail sector an opportunity to grow.

POLITICAL

FAVOURABLE

The Indian government in 2005 allowed foreign direct investment (FDI) in single brand retail to 51%. This have opened up a lot of opportunities in India organized retail sector. In fact 325 departmental stores, 300 new malls, and 1500 supermarkets are being built which shows the tremendous opportunities in the organized retail sector in India.

POLITICAL UNFAVOURABLE

The Indian government have allowed 51% foreign direct investment (FDI) in the India retail sector to one brand shops only. This have made the entry of global retail giants to organized retail sector in India difficult. This is a challenge being faced by the Indian organized retail sector.

REGULATORY

UNFAVOURABLE

The biggest challenge facing the Indian organized retail sector is the lack of retail space. With real estate prices escalating due to increase in demand from the Indian organized retail sector, it is posing a challenge to its growth. With Indian retailers having to shell out more for retail space it is effecting there overall profitability in retail.

MARKET FAVOURABLE

Growth of Retail Companies in India is still not yet in a matured stage with great potentials within this sector still to be explored. The organized retailing sector in India is only 3% and is expected to rise to 25- 30% by the year 2010. The Growth of Retail Companies in India is most pronounced in the metro cities of India, however the smaller towns are also not lagging behind in this.

TECHNOLOGICAL

FAVOURABLE

The availability of supply chain management, customer relationship management & merchandising software can help much while performing activities such as ordering & tracking inventory items, warehousing, transportation & customer profiling. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe.

SUPPLIER UNFAVOURABLE

The supplier environment offers the biggest constraint on the growth of retailing industry in India. Reaching India’s consumers cost effectively is a distribution nightmare, owing to the sheer geographical size of the country and the presence of traditional, fragmented distribution & retailing networks & erratic logistics.

External factor analysis summary (EFAS) : Retail industry in IndiaExternal strategic factors

Weight

Rating Weighted Score

OPPORTTUNITIES : 1.Indian consumer behavior pattern has changed, ushering in a revolution in modern shopping.2.Growth in foreign direct investment (FDI) in retail to 51% in India.3.The organized retailing sector in India is only 3% and is expected to rise to 25- 30% by the year 2010. 4.IT implementation ensures the retailers capture the right information, which flows to everyone back office staff to the head office managers.

0.15

0.5

0.10

0.05

4.0

3.5

3.0

2.5

0.60

0.18

0.30

0.13

External Strategic factors

Weight Rating Weighted Score

THREATS :1.Trained Manpower Shortage is a challenge faced by Organized Retail sector in India.2.Cut-throat competition from the 12 million mom-and-pop stores. These are easily accessible and provide services like free home delivery and goods at credit.3.It is also facing challenges in the form of shortages for management professionals, cash flow, supply chain management and frauds. 4.Ambiguous Political Environment.

0.05

0.15

0.10

0.05

2.5

4.0

3.0

2.5

0.13

0.60

0.30

0.13

Ques 2. Prepare an ETOP for a company interested in entering the Retailing Industry in India.

ETOP for Wal-Mart : 'Wal-Mart Stores, Inc. is the world's largest

retailer, with $256.3 billion in sales in the fiscal year ending Jan. 31, 2004. The company employs 1.6 million associates worldwide through more than 3,600 facilities in the United States and more than 1,570 units.

Environment threat and opportunity profile (ETOP) for Wal-Mart :ENIRONMENTAL SECTORS

NATURE OF IMPACT

IMPACT OF EACH SECTOR

ECONOMIC

FAVOURABLE

The Indian consumers behavior pattern has changed. Now the Indian consumer gets more hefty pay- packages, is younger, a large number of women are working, western influences, and more disposable income have opened a lot of opportunities in Indian organized retail sector. The Indian consumer wants to shop, eat and get entertainment in one place and is have given Wal-Mart an opportunity to grow.

POLITICAL

UNFAVOURABLE

The Indian government have allowed 51% foreign direct investment (FDI) in the India retail sector to one brand shops only. This have made the entry of global retail giants to organized retail sector in India difficult. This is a challenge being faced by the Wal-Mart in Indian retail sector. Being a global retailer means that you are exposed to political problems in the countries that you operate in.

MARKET

UNFAVOURABLE

Being number one means that you are the target of competition, locally and globally. Cut-throat competition from the 12 million mom-and-pop stores. These are easily accessible and provide services like free home delivery and goods at credit.

REGULATORY

UNFAVOURABLE

The biggest challenge facing Wal-Mart in India is the lack of retail space. With real estate prices escalating due to increase in demand from the Indian organized retail sector, it is posing a challenge to its growth.

RETAILING INDUSTRY EVOLUTION IN INDIA: The emergence of the neighborhood �Kirana� stores

catering to the convenience of the consumersEra of government support for rural retail: Indigenous franchise

model of store chains run by Khadi & Village Industries Commission

1980s experienced slow change as India began to open up economy.

Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of retail chains

Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches

The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers.

For e.g. Food World, Subhiksha and Nilgiris in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books.

Post 1995 onwards saw an emergence of shopping centers, Mainly in urban areas, with facilities like car parking

Targeted to provide a complete destination experience for all segments of society .

Emergence of hyper and super markets trying to provide customer with 3 V�s - Value, Variety and Volume

Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid.

At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000 crore

Retail today has changed from selling a product or a service to selling a hope, an aspiration and above all an experience that a consumer would like to repeat.     

SOME FACTS OF RETAIL INDUSTRY IN INDIA:Retail Sector is the most booming sector in the Indian

economy. Some of the biggest players of the world are going to enter the industry soon. It is on the threshold of bringing the next big revolution after the IT sector. Although organized retail market is not so strong as of now, it is expected to grow manifolds by the year 2010. The sector contributes 10% of the GDP, and is estimated to show 20% annual growth rate by the end of the decade as against the current growth rate of 8.5%. A CRISIL report says that the Indian retail market is the most fragmented in the world and that only 2% of the entire retailing business is in the organized sector. This suggests that the potential for growth is immense. There are about 300 new malls, 1500 supermarkets and 325 departmental stores currently being built in the cities across India.

Estimates and predictions for retail sector: At present, the industry is estimated to be at

more than US$ 400 billion by a study of McKinsey.

The Economist Intelligence Unit (EIU) estimates the retail market in India will increase to US$608.9 billion in 2009 from US$394 billion in 2005.

KPMG Report says that the organized retail would grow at a higher rate than the GDP in the next five years.

The retail sector would generate employment for more than 2.5 million people by the year 2010, predicts an analysis by Ma Foi Management Consultants Ltd.

Some of the players present in the industry: Archies, Bata India Ltd, Big Bazaar, Crossword, Ebony Retail Holdings Ltd., Fabmall, Food Bazaar, Globus Stores Pvt. Ltd., Health and Glow, Liberty Shoes Ltd., MTR Foods Ltd., Music World Entertainment Ltd., Pantaloon Retail India Ltd., Shoppers Stop, Style SPA Furniture Ltd, Subhiksha, Titan Industries, Lifestyle, etc.

New entrants entering the market soon will be: Reliance Retail Ltd, Wal-Mart Stores,

Carrefour, Tesco, Boots Group, etc.