Retailing in India: Trends and opportunities

Retailing - no marks for guessing this is the most active and attractive sector of the last decade. While the retailing industry itself has been present through history in our country, it is only the recent past that has witnessed so much dynamism. It's the latest bandwagon that has witnessed hordes of players leaping onto it. While international retail store chains have caught the fancy of many travelers abroad, the action was missing from the Indian business scene, at least till recently.

The emergence of retailing in India has more to do with the increasing purchasing power of buyers, specially post- liberalisation, increase in product variety, and the increasing economies of scale, with the aid of modern supply and distribution management solutions.

A definition of retailing is essential in order to be in a position to assess the impact of retailing and its future potential. The current retailing revolution has been provided an impetus from multiple sources. These `revolutionaries' include many conventional stores upgrading themselves to modern retailing, companies in competitive environments entering the market directly to ensure exclusive visibility for their products and professional chain stores coming up to meet the need of the manufacturers who do not fall into either of the above categories. Attractiveness, accessibility and affordability seem to be the key offerings of the retailing chain

The emerging sectors

Retailing, one of the largest sectors in the global economy, is going through a transition phase not only in India but the world over. For a long time, the corner grocery store was the only choice available to the consumer, especially in the urban areas. This is slowly giving way to international formats of retailing. The traditional food and grocery segment has seen the emergence of supermarkets/grocery chains (Food World, Nilgiris, Apna Bazaar), convenience stores (ConveniO, HP Speedmart) and fast-food chains (McDonalds, Dominos).

It is the non-food segment, however that foray has been made into a variety of new sectors. These include lifestyle/fashion segments (Shoppers' Stop, Globus, LifeStyle, Westside), apparel/accessories (Pantaloon, Levis, Reebok), books/music/gifts (Archies, MusicWorld, Crosswords, Landmark), appliances and consumer durables (Viveks, Jainsons, Vasant & Co.), drugs and pharmacy (Health and Glow, Apollo).

The emergence of new sectors has been accompanied by changes in existing formats as well as the beginning of new formats:

o Hypermarts:

o Large supermarkets, typically 3,500-5,000 sq. ft.

o Mini supermarkets, typically 1,000-2,000 sq. ft.

o Convenience stores, typically 750-1,000sq. ft.

o Discount/shopping list grocer

The traditional grocers, by introducing self-service formats as well as value-added services such as credit and home delivery, have tried to redefine themselves. However, the boom in retailing has been confined primarily to the urban markets in the country. Even there, large chunks are yet to feel the impact of organised retailing. There are two primary reasons for this. First, the modern retailer is yet to feel the saturation' effect in the urban market and has, therefore, probably not looked at the other markets as seriously. Second, the modern retailing trend, despite its cost-effectiveness, has come to be identified with lifestyles.

In order to appeal to all classes of the society, retail stores would have to identify with different lifestyles. In a sense, this trend is already visible with the emergence of stores with an essentially `value for money' image. The attractiveness of the other stores actually appeals to the existing affluent class as well as those who aspire for to be part of this class. Hence, one can assume that the retailing revolution is emerging along the lines of the economic evolution of society.

Spread of organised retailing:

Organised retailing is spreading and making its presence felt in different parts of the country. The trend in grocery retailing, however, has been slightly different with a growth concentration in the South.

However, the Mecca of retailing is undoubtedly Chennai. What was considered a `traditional', conservative' and `cost-conscious' market, proved to be the home ground for most of the successful retail names - FoodWorld, Music World, Health and Glow, Vitan, Subhiksha and Viveks -to name a few.

The choice of Chennai as the `retail capital' has surprised many, but a variety of factors acted in its favour. Chennai, in spite of being a rapidly growing metropolis offers reasonable real estate prices, one of the most critical elements for the industry. Chennai has been witnessing a high industrial growth and increasing presence of the MNCs, both in the IT sector as well as outside it. The industrial boom has led to the emergence of new residential areas with aggregation of professionals as well as a rapid increase in the number of `double-income' households and growth of the nouveau riche/upper middle class with increased purchasing power. This has been combined with the increasing need for touch and feel shopping (especially for the large migrant population). All the factors have acted favourably in nurturing the industry.



Consumer- the prime mover

A variety of factors seem to influence the growth in the retailing industry. `Consumer Pull', however, seems to be the most important driving factor behind the sustenance of the industry.

In this context, A. F. Ferguson & Co. had carried out a brief survey among consumers across income segments to understand their spending pattern. An analysis of the `monthly purchase basket of the consumers surveyed indicated that the average monthly household spend on food and grocery related items varied across income segments. For instance, in the case of upper income households, the average spend was around Rs 4,200 per month. As against this, the average spend in the case of a middle income household was around Rs. 2,850 and lower income households Rs. 1,250 per month. (This is computed from a sample of 100 customers having an average family size of four.)

Based on the distribution of the more than 15 lakh households in Chennai across income segments and the average spend, a conservative estimate of the grocery retailing potential at Chennai will be around Rs. 300 crores.

Besides increasing purchasing power, a variety of other factors also seem to fuel the retailing boom. With increase in double-income households and working women, there is an increasing pressure on time with very little time being available for leisure. In this scenario, consumers are seeking the convenience of one-stop shopping, whereby they could have better utility of time. They are also seeking speed and efficiency in processing, as a result. Being more aware, consumers are on the look-out for more information, better quality and hygiene as well as increased customer service. These changes in consumer behaviour also augur well for the retailing industry.

However, in India there are no uniform trends with respect to consumer buying behaviour. There are visible differences in the shopping pattern of consumers across income segments as shown in the table.

Organised retailing has definitely made headway in the upper class. However, even in this segment, items such as milk, fruits, vegetables and a significant portion of `through-the-month' purchases seem to be done at traditional outlets. The middle income class prefer shopping for processed food and personal care in supermarkets and fall back on traditional outlets for bulk shopping. Organised retail outlets seem to be associated with branded items/special purchases. Organised retailing does not seem to have made an impact on the lower class, except for `curiosity' shopping.

The biggest question before organised retailers therefore, is whether this really means a huge untapped potential for the organised retailers and whether the

conversion in mindset going to be easy.

Emerging trends

The single most important evolution that took place along with the retailing revolution was the rise and fall of the dotcom companies. A sudden concept of `non-store' shopping emerged, which threatened to take away the potential of the store. More importantly, the very nature of the customer segment being addressed was almost the same. The computer-savvy individual was also a sub-segment of the `store' frequenting traffic.

Internationally, the concept of Net shopping is yet to be proven. And the poor financial performance of most of the companies offering virtual shopping has resulted in store-based retailing regaining the upper hand. Other forms of non-store shopping including various formats such as catalogue/mail order shopping, direct selling, and so on are growing rapidly. However, the size of the direct market industry is too limited to deter the retailers. For all the convenience that it offers, electronic retailing does not suit products where `look and see' attributes are of importance, as in apparel, or where the value is very high, such as jewellery, or where the performance has to be tested, as of consumer durables. The most critical issue in electronic retailing, especially in a country such as ours, relates to payments and the various security issues involved.

Retail management skills

It is a fact that the retailing industry is in its starting phase in our country. The benefits of organised retailing will only be felt once an equitable scale is achieved. This to a large extent depends on the store size, the walkthroughs, bills per customer per year, average bill size and the revenue earned per sq. ft. But besides resources and bottomline, a variety of other aspects need to be in place for tasting success. The need for qualified and trained manpower is of utmost importance. The need for specialised skills is increasingly felt in the areas of:

* Strategic management - strategising, targeting and positioning, marketing and site selection, among others

* Merchandise management - Vendor selection, inventory management, pricing and so on

* Store management - Layout, display, customer relationship, inventory management, etc.

* Administrative Management - Human resources, finance, marketing and so on.
With the need for specialised skill set, retailing has become a specialised area of knowledge and training. The RPG School of Retailing and the introduction of specialised retailing courses at various business schools, including the IIMs, stand testimony to this.