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Retail Market in India

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Indian Retail Industry: Current Scenario Indian retail industry is going through a transition phase. Most of the retailing in our country is still in the unorganized sector. The spread out of the retails in US and India shows a wide gap between the two countries. Though retailing in India is undergoing an exponential growth, the road ahead is full of challenges. What is retailing? The word “Retail” originates from a French-Italian word. Retailer-someone who cuts off or sheds a small piece from something.

Retailing is the set of activities that markets products or services to final consumers for their own personal or household use.

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It does this by organizing their availability on a relatively large scale and supplying them to customers on a relatively small scale. Retailer is a Person or Agent or Agency or Company or Organization who is instrumental in reaching the Goods or Merchandise or Services to the End User or Ultimate Consumer. Retailing is one of the pillars of the economy in India and accounts for 35% of GDP.

[1] The retail industry is divided into organised and unorganised sectors. Over 12 million outlets operate in the country and only 4% of them being larger than 500 sq ft (46 m2) in size.

Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. [2] Most Indian shopping takes place in open markets and millions of independent grocery shops called kirana.

Organized retail such supermarkets accounts for just 4% of the market as of 2008. [3] Regulations prevent most foreign investment in retailing. Moreover, over thirty regulations such as “signboard licences” and “anti-hoarding measures” may have to be complied before a store can open doors. There are taxes for moving goods to states, from states, and even within states. The Indian Retail Market Indian market has high complexities in terms of a wide geographic spread and distinct consumer preferences varying by each region necessitating a need for localization even within the geographic zones.

India has highest number of outlets per person (7 per thousand) Indian retail space per capita at 2 sq ft (0. 19 m2)/ person is lowest in the world Indian retail density of 6 percent is highest in the world. [10] 1. 8 million households in India have an annual income of over 45 lakh[11]. Delving further into consumer buying habits, purchase decisions can be separated into two categories: status-oriented and indulgence-oriented. CTVs/LCDs, refrigerators, washing machines, dishwashers, microwave ovens and DVD players fall in the status category.

Indulgence-oriented products include plasma TVs, state-of-the-art home theatre systems, iPods, high-end digital cameras, camcorders, and gaming consoles. Consumers in the status category buy because they need to maintain a position in their social group. Indulgence-oriented buying happens with those who want to enjoy life better with products that meet their requirements. When it comes to the festival shopping season, it is primarily the status-oriented segment that contributes largely to the retailer’s cash register. 12] While India presents a large market opportunity given the number and increasing purchasing power of consumers, there are significant challenges as well given that over 90% of trade is conducted through independent local stores. Challenges include: Geographically dispersed population, small ticket sizes, complex distribution network, little use of IT systems, limitations of mass media and existence of counterfeit goods. [13] Retailing is the most active and attractive sector of last decade. While the retailing industry itself has been present since ages in our country, it is only the recent past that it has witnessed so much dynamism.

The emergence of retailing in India has more to do with the increased purchasing power of buyers, especially post-liberalization, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solution. Indian retailing today is at an interesting crossroads. The retail sales are at the highest point in history and new technologies are improving retail productivity. though there are many opportunities to start a  new retail business, retailers are facing numerous challenges. KEY CHALLENGES: 1) LOCATION: “Right Place, Right choice”

Location is the most important ingredient for any business that relies on customers, and is typically the prime consideration in a customers store choice. Locations decisions are harder to change because retailers have to either make sustainable investments to buy and develop real estate or commit to long term lease with developers. When formulating decision about where to locate, the retailer must refer to the strategic plan: * Investigate alternative trading areas. * Determine the type of desirable store location * Evaluate alternative specific store sites 2) MERCHANDISE:

The primary goal of the most retailers is to sell the right kind of merchandise and nothing is more central to the strategic thrust of the retailing firm. Merchandising consists of activities involved in acquiring particular goods and services and making them available at a place, time and quantity that enable the retailer to reach its goals. Merchandising is perhaps, the most important function for any retail organization, as it decides what finally goes on shelf of the store. 3) PRICING: Pricing is a crucial strategic variable due to its direct relationship with a firm’s goal and its interaction with other retailing elements.

The importance of pricing decisions is growing because today’s customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change. 4) TARGET AUDIENCE: “Consumer the prime mover” “Consumer Pull”, however, seems to be the most important driving factor behind the sustenance of the industry. The purchasing power of the customers has increased to a great extent, with the influencing the retail industry to a great extent, a variety of other factors also seem to fuel the retailing boom. 5)  SCALE OF OPERATIONS:

Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India. PRESENT INDIAN SCENARIO * Unorganized market: Rs. 583,000 crores * Organized market: Rs. 5, 000 crores * 5X growth in organized retailing between 2000-2005 * Over 4,000 new modern Outlets in the last 3 years * Over 5,000,000 sq. ft. of mall space under development * The top 3 modern retailers control over 750,000 sq. ft. of retail space * Over 400,000 shoppers walk through their doors every week Growth in organized retailing on par with expectations and projections of the last 5 Years: on course to touch Rs. 35,000 crores (US$ 7 Billion) or more by 2005-06 TRADITIONAL RETAIL SCENE IN INDIA India is the country having the most unorganized retail market. Traditionally the retail business is run by Mom & Pop having Shop in the front & house at the back. More than 99% retailers function in less than 500Sq. Ft of area. All the merchandise was purchased as per the test & vim and fancies of the proprietor also the pricing was done on ad hock basis or by seeing at the face of customer.

Generally the accounts of trading & home are not maintained separately. Profits were accumulated in slow moving & non-moving stocks which were to become redundant or consumed in-house. Thus profits were vanished without their knowledge. The Manufactures were to distribute goods through C & F agents to Distributors & Wholesalers. Retailers happen to source the merchandise from Wholesalers & reach to end-users. The merchandise price used to get inflated to a great extent till it reaches from Manufacturer to End-user. Selling prices were largely not controlled by Manufacturers.

Branding was not an issue for majority of customers. More than 99% customers are price sensitive & not quality or Brand Sensitive at the same time they are Brand conscious also. Weekly Bazaar in many small tows was held & almost all the commodities were on the scene including livestock. Bargaining was the unwritten law of market. Educational qualification level of these retailers was always low. Hence market was controlled by handful of distributors &/or Wholesalers. Virtually there was only one format of retailing & that was mass retail. Retailer to consumer ratio was very low, for all the categories without exception.

Varity in terms of quality, Styles were on regional basis, community based & truly very low range was available at any given single place. Almost all the purchases / (buying) by mass population was need oriented & next turn may be on festivals, Marriages, Birthdays & some specific occasions. Impulsive buying or consumption is restricted to food or vegetables etc. Having extra pair of trousers or Shirts or Casuals & Formals & leisure wear & sports wear & different pair of shoes for occasions is till date is a luxury for majority population except for those living in Metros.

Purchasing power of Indian urban consumer is very low and that of Branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food, Jewellery, are slowly seeping into the lifeline of Indian City folks. However electronic & electrical home appliances do hold appropriate image into the minds of consumers. Brand name does matter in these white goods categories. In the coming times also majority of organized retailers will find it difficult to keep balance with rest of the unbranded retail market which is very huge.

Growth An increasing number of people in India are turning to the services sector for employment due to the relative low compensation offered by the traditional agriculture and manufacturing sectors. The organized retail market is growing at 35 percent annually while growth of unorganized retail sector is pegged at 6 percent. [4] The Retail Business in India is currently at the point of inflection. Rapid change with investments to the tune of US $ 25 billion is being planned by several Indian and multinational companies in the next 5 years.

It is a huge industry in terms of size and according to management consulting firm Technopak Advisors Pvt. Ltd. , it is valued at about US $ 350 billion. Organised retail is expected to garner about 16-18 percent of the total retail market (US $ 65-75 billion) in the next 5 years. [5] India has topped the A. T. Kearney’s annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment. The Indian economy has registered a growth of 8% for 2007. The predictions for 2008 is 7. 9%. 6] The enormous growth of the retail industry has created a huge demand for real estate. Property developers are creating retail real estate at an aggressive pace and by 2010, 300 malls are estimated to be operational in the country. [7] With over 1,000 hypermarkets and 3,000 supermarkets projected to come up by 2011, India will need additional retail space of 700,000,000 sq ft (65,000,000 m2) as compared to today. Current projections on construction point to a supply of just 200,000,000 sq ft (19,000,000 m2), leaving a gap of 500,000,000 sq ft (46,000,000 m2) that needs to be filled, at a cost of US$15-18 billion. 8] INDIAN RETAIL IS MOVING INTO SECOND GEAR 1) FIRST GEAR: (Create awareness) * New retailers driving awareness * High degree of fragmentation * Real estate groups starting retail chains * Consumer expecting ‘value for money’ as core value 2) SECOND GEAR: (Meet customer expectations) * Consumer-driven * Emergence of pure retailers * Retailers getting multi-locational and multi-format * Global retailers evincing interest in India 3) THIRD GEAR: (Back end management) * Category management * Vendor partnership * Stock turns * Channel synchronization * Consumer acquisition * Customer relation’s management ) FOURTH GEAR: (Consolidation) * Aggressive rollout * Organized retail acquitting significant share * Beginning of cross-border movement * Mergers and acquisitions Major Indian Retailers Indian apparel retailers are increasing their brand presence overseas, particularly in developed markets. While most have identified a gap in countries in West Asia and Africa, some majors are also looking at the US and Europe. Arvind Brands, Madura Garments, Spykar Lifestyle and Royal Classic Polo are busy chalking out foreign expansion plans through the distribution route and standalone stores as well.

Another denim wear brand, Spykar, which is now moving towards becoming a casualwear lifestyle brand, has launched its store in Melbourne recently. It plans to open three stores in London by 2008-end. [14] The low-intensity entry of the diversified Mahindra Group into retail is unique because it plans to focus on lifestyle products. The Mahindra Group is the fourth large Indian business group to enter the business of retail after Reliance Industries Ltd, the Aditya Birla Group, and Bharti Enterprises Ltd. The other three groups are focusing either on perishables and groceries, or a range of products, or both. Vivek Limited Retail Formats: Viveks, Jainsons, Viveks Service Centre, Viveks Safe Deposit Lockers • REI AGRO LTD Retail-Formats:6TEN Hyper & 6TEN Super • RPG Retail-Formats: Music World, Books & Beyond, Spencer’s Hyper, Spencer’s Super, Daily & Fresh • Pantaloon Retail-Formats: Big Bazaar, Food Bazaar, Pantaloons, Central, Fashion Station, Brand Factory, Depot, aLL, E-Zone etc. • The Tata Group-Formats: Westside, Star India Bazaar, Steeljunction, Landmark, Titan Industries with World of Titans showrooms, Tanishq outlets, Chroma. K Raheja Corp Group-Formats: Shoppers Stop, Crossword, Hyper City, Inorbit • Lifestyle International-Lifestyle, Home Centre, Max, Fun City and International Franchise brand stores. • Pyramid Retail-Formats: Pyramid Megastore, TruMart • Nilgiri’s-Formats: Nilgiris’ supermarket chain • Subhiksha-Formats: Subhiksha supermarket pharmacy and telecom discount chain. • Trinethra- Formats: Fabmall supermarket chain and Fabcity hypermarket chain • Vishal Retail Group-Formats: Vishal Mega Mart • BPCL-Formats: In & Out • Reliance Retail-Formats: Reliance Fresh • Reliance ADAG Retail-Format: Reliance World • German Metro Cash & Carry PGC Retail -Formats:T-Mart , Switcher , Respect India , Grand India Bazaar , HTHP ,etc. , • Shoprite Holdings-Formats: Shoprite Hyper • Paritala stores bazar: honey shine stores • Aditya Birla Group – more Outlets Entry of MNCs The world’s largest retailer by sales, Wal-Mart Stores Inc and Sunil Mittal’s Bharti Enterprises have entered into a joint venture agreement and they are planning to open 10 to 15 cash-and-carry facilities over seven years. The first of the stores, which will sell groceries, consumer appliances and fruits and vegetables to retailers and small businesses, is slated to open in north India by the end of 2008. 15] Carrefour, the world’s second largest retailer by sales, is planning to setup two business entities in the country one for its cash-and-carry business and the other a master franchisee which will lend its banner, technical services and know how to an Indian company for direct-to-consumer retail. [16] The world’s fifth largest retailer by sales, Costco Wholesale Corp (Costco) known for its warehouse club model is also interested in coming to India and waiting for the right opportunity. [17] Opposition to the retailers’ plans have argued that livelihoods of small scale and rural vendors would be threatened.

However, studies have found that only a limited number of small vendors will be affected and that the benefits of market expansion far outweigh the impact of the new stores. [18] Tesco Plc. , plans to set up shop in India with a wholesale cash-and-carry business and will help Indian conglomerate Tata group to grow its hypermarket business. Challenges To become a truly flourishing industry, retailing needs to cross the following hurdles:[19] • Automatic approval is not allowed for foreign investment in retail. Regulations restricting real estate purchases, and cumbersome local laws. • Taxation, which favours small retail businesses. • Absence of developed supply chain and integrated IT management. • Lack of trained work force. • Low skill level for retailing management. Intrinsic complexity of retailing – rapid price changes, constant threat of product obsolescence and low margins Conclusion For a start, these retailers need to invest much more in capturing more specific market. Intelligence as well as almost real-time customer purchase behavior information.

The retailers also need to make substantial investment in understanding/acquiring some advanced expertise in developing more accurate and scientific demand forecasting models. Re-engineering of product sourcing philosophies-aligned more towards collaborative planning and replenishment should then be next on their agenda. The message, therefore for the existing small and medium independent retailers is to closely examine what changes are taking place in their immediate vicinity, and analyze Whether their current market offers a potential redevelopment of the area into a more modern multi-option destination.

If it does, and most commercial areas in India do have this potential, it would be very useful to form a consortium of other such small retailers in that vicinity and take a pro-active approach to pool in resources and improve the overall infrastructure. The next effort should be to encourage retailers to make some investments in improving the interiors of their respective establishments to make shopping an enjoyable experience for the customer. As the retail marketplace changes shape and competition increases, the potential for improving retail productivity and cutting costs is likely to decrease.

Therefore, it will become important for retailers to secure a distinctive position in the marketplace based on value, relationships or experience. Finally, it is important to note that these strategies are not strictly independent of each other; value is function of not just price, quality and service but can also be enhanced by Personalization and offering a memorable experience. In fact, building relationships with customers can by itself increase the quality of overall customer experience and thus the perceived value. But most importantly for winning in this intensely competitive marketplace.

Cite this Retail Market in India

Retail Market in India. (2018, Feb 07). Retrieved from https://graduateway.com/retail-market-in-india/

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