Hims Org Retail Session II Oct 2011

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ORGANIZED RETAILING BUSINESS IN INDIA

Major Constraints and BottlenecksEmphasis to eliminate barriers to growth

Session IISession II

SOUMITRA MOOKHERJEESOUMITRA MOOKHERJEE

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The large retailers are groping for the right kind of formats for a geographically diverse country like India. There are several problems plaguing the industry, in addition to the glaring absence of FDI.

New Formats developed include a switch from Single Point retail services to multiple services at one point

Challenges for Development of Organized Retailing

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Organised retailing has just made a foray in the country and is only 4 per cent of the total retailing business. The growth engines of industry are the grocery, apparel, and consumer products segments.

The introduction of modern retailing techniques since liberalization has improved standards in the industry and the services offered to the consumers.

These traditional ‘Kirana’ stores have held their ground, in the face of growing competition, by offering personalized services, credit facilities and by stocking up products that were not available earlier.

Challenges for Development of Organized Retailing

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Status of Organized Retailing in India and China

China India Retail Industry reforms

began as early as in 1992.

In June 1999 provisional rules on retailing and wholesaling were formulated and designed to facilitate progress in retail business

The Industry has largely been neglected in terms of policy changes essential for its development.

The sector’s revenue creation, consumer benefits & employment generation potential has not been adequately factored into the development paradigm.

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China IndiaForeign Direct Investment in the Chinese retail sector has been responsible for:

Growth and development of the sector offering more choices at lower prices

Excellent shopping ambience, management skills, vigour and tremendous benefits to consumers

Diverse formats which are productive and offering of different useful propositions to consumers

India is missing out on the benefits that FDI could provide.

Companies from USA, Germany, Netherlands, France, Japan, Hong Kong, Thailand, Malaysia and Singapore could change the face of our country, which offers a large and expanding market

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China India

Foreign Direct Investment in the

Chinese retail sector has been

responsible for: Pressure on domestic retailers

to perform, which would in turn make them globally competitive in the long run

Voluminous purchases of Chinese goods by overseas corporations has provided a direct outlet for their export

Benefits to domestic retailers in terms of technical know-how

Organized retailing has been granted industry status and FDI possibility has been announced for single brand outlets.

No concrete and structured FDI norms and regulations have been introduced due to political conflicts and concern over competitive pressures on domestic retailers and kirana shop owners


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CHINA INDIA

Positive and timely government policies have propelled the sector forward to reach incredible heights

The following basic issues need to

be addressed: Inter-state movement of goods

remain constrained causing a hindrance for large retail chain developers.

Reforms on the real estate, tax, labour laws and infrastructure fronts are necessary conditions for growth.

Proactive and stimulatory policies need to be put in place.

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CHINA INDIA The share of organized sector in

total retailing is 20%. Although small shops and fragmented distribution structure is very much present, the organized sector has imparted the needed efficiency.

With a 4% organized sector share, India is far behind. This explains the productivity gap, which pushes down its performance.

The potential of the retail sector has been recognized and is being channeled through appropriate routes and policies

The potential is enormous and encouraging. It is the lack of a strong backing from the government for reforms that needs immediate attention.


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The steps that India could take based on some of the measures China has already adopted for development of this sector include:

Allow Foreign Direct Investment Remove Infrastructural and Other Bottlenecks Make preferential loans available for development of

highly productive and successful formats in the country Include development of the retail industry, on a priority

basis in the Five Year Plans. To quench the need for trained personnel in the industry,

encourage private and government institutes to introduce appropriate retail courses to impart necessary education and training.

Organized Retailing: Steps for spearheading development

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REAL ESTATE

High real estate and property prices

Shortage of good quality retail space

High rentals for space which is presently available

Soaring demand for space in cities which compounds shortage.

Retailing Business: Constraints and Structural Barriers

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REAL ESTATE

Debarment of foreigners from owning property in India which blocks FDI inflow

High stamp duties on property deals.

Rigid building and zoning laws, strong pro-tenancy laws and absence of clear titles to owner ship are some of the common problems.


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LABOUR LAWS

Working hours are restricted with shops required to close one day of the week

Hiring of part time employees is difficult.

These rigidities in the law constrain the operations of modern retail outlets.

Lack of competent and qualified manpower and workforce as per trade specific requirements


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LABOUR LAWS

The biggest challenge the organized retailer in India faces is getting trained manpower.

The need for informative and useful undergraduate courses (to standardize the sector and to remove the stigma attached to employment in the retail sector), are some of the other areas that merit attention.

Most academic institutions are now offering specialized diploma programs (in the field of retail management ) independently or through JVs with established players, which would be a pragmatic solution to the above problem.


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TAXATION STRUCTURE

A Corporate Tax rate of 38 per cent, which would be 45 per cent for a foreign business

Tax imposed on basic foodstuffs

Varying sales tax rates across states, which makes Supply Chain Management (SCM) difficult.

Import Duties should also be brought down further.


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BUREAUCRACY

The existence of a layer of petty bureaucracy that requires licenses for everything is time consuming and harassing.

Approval process is quite complex and time consuming

State and city licenses required for trading.

Separate licenses are required for dealing in various commodities like textiles, baby foods, food products, etc


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INFRASTRUCTURE STATUS

Lack of basic and adequate infrastructure

Shortage of power supply, particularly in the satellite and small cities, where small players are establishing retail showrooms and units

Absence of adequate parking space

Non availability of sufficient operating space in appropriate locations


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AVAILABILITY OF CREDIT AT COMPETITIVE RATES

Credit Policy of RBI does not spell out any credit allocation norms or customized preferential loan structure for this sector

Bank credit is available, but some revamping of the loan structure would be beneficial considering the high entry costs and capital intensive nature of the project

Facilitate development of productive and successful formats


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SUPPLY CHAIN FRAMEWORK

Need to focus on the following areas for enhancing value chain efficiency:

- Central Warehousing or Decentralized Warehousing- Product assortment and Product Display - Investments required for sustaining operational excellence- (e.g. Fresh Foods, Beverages)- Facility and technology for Storage, warehousing,

sourcing, product movement

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SUPPLY CHAIN FRAMEWORK (Cont’d)

Need to focus on the following areas for enhancing valuechain efficiency:- Sales forecasting and planning- Product stock tracking and periodic replenishment- Inventory control and Improving working capital

management- Vendor management and procurement scheduling- Improving working capital management- Proper Logistics support for marketing of agricultural

commodities and processed foods.

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Agricultural Goods: Mode of Production & Distribution

- Consolidation of land holdings

- Displacement of small farmers and increase in ownership of large land size

- Better Technology and progressive farming

- Farmers can directly supply to ORR Outlets, without channelizing through intermediaries


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RETAIL BRANDING

Typically, this is a long term objective, and cannot happen in haste as brand building requires customer adoption and loyalty

Need to Reinvent Retail Branding concept and apply the micro branding approach (e.g. consumer: person branding)

Lack of awareness and brand image may be a binding constraint on firms ability to differentiate between the rival firms


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RETAIL BRANDING

Customers: What They Want- High Quality Service- High level of Satisfaction- Customer Delight- Value for Money

Two circles of competencies

Brand Competencies Retail Competencies


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CONSUMER EXPERIENCES

The present focus of retail managers is Profit on sale, with minimal emphasis on profit on Customers

Customers needs to be addressed timely and efficiently

How should customers be dealt with: What you say and how you initiate dialogue All inclusive phenomenon Staff interaction


Hims Org Retail Session II Oct 2011

Documents

Transcript of Hims Org Retail Session II Oct 2011