Organised and
Unorganised retailing in India
Retail Management Notes B.Com 5th Sem CBCS Pattern
Evolution of Retailing in India
While barter is considered to be the oldest form of retail trade,
since independence, Retail in India has evolved to support the unique needs to
our country given its size and complexity. Haats, Mandis and Melas have always been
a part of the Indian landscape. They will continue to be present in most parts
of the country and form an essential part of life and trade in various areas.
The PDS or the Public Distribution System would easily as the
single largest retail chain existing in the country. The evolution of the
public distribution of grains in India has its origin in the ‘rationing’ system
introduced by the British during the World War II. The System was started in
1939 in Bombay and subsequently extended to other cities and towns. By the year
1946, as many as 771 cities / towns were covered. The system was abolished post
war, however, on attaining Independence, India was forced to reintroduce it in
1950 in the face of renewed inflationary pressures in the economy.
Tracing the evolution of Indian retail would be incomplete without
mention of the Canteen Stores Department and the Post Offices in India. The
Khadi & Village Industries (KVIC) was also set up post independence. Today,
there are more than 7,050 KVIC stores across the country. The Co-operative
movement was again championed by the government which set up Kendriya Bhandras
in 1963. In Maharashtra, Bombay Bazaar, which stores under the label Sahakari Bhandar,
and Apna Bazaars run a large chain of Co-operative stores.
In the past decade, the Indian marketplace has transformed
dramatically. However from the 1950’s to the 80’s investments in various
industries was a limit due to the low purchasing power in the hands of the
consumer and the Governments policies favoring the small- scale sector? It was
at this time that many steps towards liberalization were taken in the period of
1985-90. It was at this time many restrictions on private companies were
lifted, and in the 1990’s the Indian economy slowly progressed from state led
to becoming ‘market friendly’.
While independent retail stores chain like Akbarally’s Vivek’s and
Nalli’s have existed in India for a long time, the first attempts at organized
retailing were noticed in the textiles sector. One of the pioneers in this
field was Raymond’s which set up stores to retail fabric. It also developed a
dealer network to retail its fabric. These Dealers sold a mix of fabrics of
various textile companies. The Raymond’s distribution network today of 20,000 retailers
and over 429 showrooms across the country.
Other textile manufacturers who also set up their own retail
chains were reliance – which set up Vimal Showrooms – and Garden Silk Mills
with Garden Vareli. It was but natural that with the growth of textile retail, readymade
branded apparel could not be far behind and the next wave of organized retail
in India saw the likes of Madura Garments, Arvind Mills, etc, set up showrooms
for branded mens wear. With the success of the branded mens wear store, the new
age departmental store arrived in India in the early nineties.
This was in a sense, the beginning of new era retail in India. The
fact that post liberalization, the economy had opened up and a new large middle
class with spending power had emerged, helped shape this sector. The vast middle
class market demanded value for money products, a better shopping ambience,
more convenience and one stop shopping. This has fuelled the growth of
departmental stores, supermarkets and other specialty stores. The concept of
retail as entertainment came to India with the advent of mails. The development
of malls is now visible not only in the major metros but also in the other
parts of the country.
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👉👉Retail Management Notes
Organised and Unorganised Retailing
Retail can be defined as the process of selling goods
from a set location. In the process, the retailer functions as a facilitator
between manufacturer and consumers. Therefore, a retailer can be termed
as a middleman or reseller acting
as a bridge between consumer and manufacturer. Retailers are mainly divided
into two parts: Organised and Unorganised retailing.
The Organised retailing refers to the trading activities
undertaken by licensed retailers that is those who registered themselves for
sales tax ,income tax ,etc. These include the corporate –backed hypermarkets
and retail chains and also the privately owned large businesses. The various
forms of organized retail are
1) Hypermarkets:They
store products of multiple brands comprising food items and non-food items.
2) Supermarkets:These
are self service stores selling food and personal care products.E.g.Subhiksha.
3) Departmental
Stores:Retails branded goods in non-food categories.E.g. Shoppers stop.
4) Speciality
Chains:These focus on branded product or product category.E.g.Bata Convenience
Stores.
5) Malls:A
huge enclosure which has different retail formats.E.g.Pantaloon Retail.
Whereas,Indian retail is dominated by a large number of small
retailers consisting of the local kirana shops, owner-manned general stores,
chemists, footwear shops, apparel shops, paan and beedi shops, hand-cart
hawkers, pavement vendors, etc. which together make up the so-called “unorganized
retail” or traditional retail.
Organized retailing is based on the principle of unity and unorganized retailing is based on the principle of
singularity. Both organized and unorganized retailing is found in most of the
countries throughout the world. India and China are strong examples of
countries in which unorganized retailing dominated their markets. Today these
countries have a growing economy because of the influx of organized retailers into their
markets. The last 3-4 years have witnessed the entry of a number of
organized retailers, opening stores in various modern formats in metros and
other important cities.The growth in organized retailing in recent years can
also be gauged by the rise of shopping malls as well as the rising number
of modern retail formats.
Benefits of Organised Retailing
1) Employment Generation
2) Increasing efficiency in Agriculture
3) Enhance shopping experience for consumers
4) Creating a positive social Change
5) Economies of Scale
Employment Generation: Modern retailing has the potential for
generating employment of 2.5millions people by 2010 in various retail
operations and more than 10millions in indirect retail activities including
contract production and processing, supply chain and logistics, retail real
estate development and management.
Increasing efficiency in Agriculture : The concept of middleman in
food supply chain is matter of yesterday. Farmers are cultivating crops as per
the demand of retailers. Customers are getting benefits of reduced pricing while
the farmers are receiving higher returns for their produce. Only organized
retail provides mass marketing of processed and package foods.
Enhanced shopping experience for consumers: Trends of shopping
with entertainment is gaining momentum because of time and traffic congestion.
An organised retail offers one stop shopping with many product baskets at
single location. These formats add experience of large scale purchase, consumer
preference, excellent ambience and choice of merchandising.
Creating Positive Social Change : Retailing leads to improvement
in local infrastructure by providing adequate parking facilities, ATM, a safe
and secure environment which encourages the setting up of 24 hrs. Convenience
stores, a hygienic ambience to the consumer's etc. This is enabling positive
social change in the industry.
Economies of Scale: They are going for vertical integration from
outlets to establish malls.
Suggestion for Retail Reforms
1. Accord Industry Status to Retail : Industry status should be
given to improve retail development, to facilitate organised financing and to
establish insurance norms.
2. Incentives for Investments : Tax holidays norms for cold
storage chains, infrastructure and investments in supply chain should be
enacted.
3. Comprehensive Legislation : Comprehensive legislation should be
drafted and enacted with futuristic approach.
4. Eliminating Arachic Laws : Laws, Essential Commodities Act,
APMC Acts, Licensing restriction, differential taxes, stamp duties, should be
simplified and put in proper place so that it would not hinder growth of retail
sector. This will help in creating "Commodities Futures Markets".
5. Allow Foregin Direct Investment (FDI) in phased manner : Allow
foreign direct investment in the company according to financial planning.
6. Rationalise the tax structure : The current multipoint taxation
should be rationalised. Government should introduce a uniform taxation system
across the country to relax the law that hinder inter state flows of goods.
7. Streamline the process of clearance
8. Encourage PPP model for infrastructural development
9. Amend the existing cumbersome labour laws: The existing labour
laws needs to be amended on an urgent basis in order to support the growth the
growth of organised retailing and to develop India as a sourcing hub.
10. Announce a national policy for retail: The Government should
announce a National Retail Policy that allows the coexistence of both organised
and unorganised retail and address issues such as sourcing, contract farming,
movement of goods across India and also defines clear cut guidelines for the
functioning of retail sector in India.
11. Establishment of National Commission on Retail: The national
commission on retail must be established. The function of commission should be
:
a) To set clear target for giant retailers for procurement.
b) To formulate rules on entry of foreign players and compliance
with social safeguards.
c) To develop cooperative stores for eradicating the problems of
limited marketing and promotions.
d) To facilitate the way of setting up Agricultural Perishable
Produce Commission for ensuring the procurement prices for perishable
commodities.
12. Reduce impediments to inter state movement of goods
13. Enforce uniform quality standards
CHALLENGES FACED BY RETAIL SECTOR IN INDIA
The retailing sector in India is at the
development stage and its faces a number of challenges as highlighted below:
1. Technology:
The availability, feasibility and the adoption of the appropriate
technology in a cost effective manner is the biggest challenge for the
retailers in India. The technology has emerged as one of the most important
factor retail not only for billing purpose, but also for control of
merchandize, for logistics and supply chain, for placing order, for prevention
of theft, etc. It is not economically possible for all the emerging players to
adopt the technology in the first stage of their business.
2. Internal Transportation: Most of the big
brands have a policy that if any retailer/wholesaler wants to purchase the
product directly from the purchasing company, they deliver a particular minimum
quantity of the products generally a complete vehicle full of products (as
applicable). Now the modern retailers have the policy that they procure the
products directly from the purchasing company in order to minimize the
procurement cost (avoiding any intermediaries) and ultimately sell to the end
customer at comparatively lower cost. But the fact to be noted here is that
these companies cannot get the whole vehicle full of one product unloaded at
one of their outlet. Due to this, they have to get the delivery at one of their
centralized warehouse from where they transport to their individual stores on
weekly/fortnightly basis.
3. Skilled Workforce: The next major challenge
facing retailers today is the availability of the skilled workforce. With the
opening up of the FDI route and the entry of the foreign players in India, they
are offering very handsome salaries to the manpower in India to attract them.
Most of the retailers are sending the senior management from their home country
to manage the operations, and they are taking the middle management and lower
level employees from India as they are available at comparatively lower cost in
the home country. Due to the offering of handsome salaries by the foreign
players, the local retailers/retail chains are offering the shortage of
manpower. To retain some of their old experienced employees, they have to offer
higher salaries which ultimately affect the finances.
4. Stock shrinkage: It is generally said that
profitability of the business increases with the size of the business. Bigger
is the business, higher are the profits. But with every good thing comes the
challenges. Similarly, the challenge which arises here is the theft and fraud.
Due to the large scale of operations, the retailers today face the problem of
theft (both by the store employees as well as the customer). This theft comes
to notice only when at the end of the month/time period, the stock is audited.
But nothing can be done by then. Due to large scale operations, if there occurs
any administrative error, it multiplies to the higher values.
5. Inventory management:
Retail starts with inventory. Inaccurate inventory records alone
cost companies, on average, 10% of profits a year. Knowing what to buy, when to
buy it and when to mark down or clear underperforming products has always been
a key part of remaining competitive in the retail environment. Poor financial
performance is the obvious result of carrying too much stock or too many
show-moving items.
6. Supplier fraud multiplication effect: The vendor fraud is another challenge for
retailer. The vendors generally have the tendency to supply the material with a
revised amount of products than what was agreed to. For example a particular
product was agreed at a price of Rs. 10 per unit by the supplier to the
retailer. Now when the product order was actually delivered, the bill contained
the amount as Rs. 10.20 per unit. If the retailer observes it is just 20 paisa
per unit more. And the retailer’s staff is there to check such discrepancies
before making payments.
7. Customer retention:
Customer retention is also one of the major problems in retail. The
customers today have such as wide range of options that each and every retailer
is ready with its own set of schemes/offers to lure the customers of the other.
Sometimes the retailers even operate at losses to throw a new player out of the
market. Customers today have become so informed and evolved that they want each
and every product/service with best quality at the most economical price.
8. Consumer Perspective:
Consumer response to supermarkets has been moderate because most do
not have access to transportation to a supermarket and are still in the habit
of buying fresh produce daily from local stores. This is mostly due to the
proximity to homes and personal service of local stores.
9. Regular supply of electricity: Continuous supply of electricity is a major
challenge in India. But the retailers have employed a large number of
convenience management systems for the visitors some of which need continuously
supply of electricity round of clock (24 hours). Now if these equipments are
not managed and not run round the clock, the shopping experience would become
worse than-being pleasant.
10. Competition from unorganized sector: Unorganized retail sector is still
predominating over organized sector in India. Supermarkets and similar
organized retail accounted for just 4% of the market. Organized retailers face
immense competition from the unorganized retailers or kirana stores (mom and
pop stores) that generally cater to the customers within their neighbourhood
and offer personalized services such as direct credit to customers, free home
delivery services, apart from the loyalty benefits.
11. MULTIPLE TAXATION:
The tax structure in India is such that it favours the small
unorganized retailers. The status of the retail industry depends on the factors
such as the economic and other policies formed by the Government, real estate
prices, taxation laws etc.
12. Stock Management: As
compared to the local retailer, it is very difficult for the organized players
to manage the stock.
13. Lack of Proper Physical Communication
Facilities: Nearly fifty percent of the villages in the country do not have
proper road connectivity. But as it is knows that the major population of India
lives in villages. Now if the retailers go in for communicating their
products/services in these areas, they have to bear the higher costs. Even
today it is observed that villages in the Eastern parts of the country are inaccessible
during the monsoon. Also it is seen that the rural areas are scattered and it
is not possible to ensure the availability of a brand all over the country.
14. Many Languages and Dialects: The number of languages and dialects vary
widely from state to stage, region to region and probably from district to
district. The messages have to be delivered in the local languages and
dialects. Even though the numbers of recognized languages are only 16, the dialects
are estimated to be around 850. Thus it becomes a challenge for the retailer to
cover all the villages as it is not possible for the retailer to cover such a
wide variety of languages and dialects.
15. Low Income literacy level in rural areas: Even though about 33-35% of gross domestic
product is generated in the rural areas it is shared by 74% of the population.
Hence, the per capital incomes are low compared to the urban areas.
16. Spurious Brands and Seasonal Demand: For any branded product, there are the
local, spurious products available which are relatively cheaper and therefore
more preferable by the villagers. Moreover the private labels launched by the
modern retailers are eating away the national brands.
17. Different Way of Thinking: There is a vast difference in the lifestyles
of the people. The kind of choices of brands that an urban customer enjoys is
different from the choices available to the rural customer. The rural customer
usually has 2 or 3 brands to choose from whereas the urban one has multiple
choices. The differences are also in the way of thinking. The rural customer
has a fairly simple thinking as compared to the urban counterpart.
OPPORTUNITIES FOR RETAIL SECTOR IN INDIA
After discussing and carefully analyzing the
challenges for the retail industry in India, then next are the opportunities
which if carefully tapped, can create a huge positive impact on the retail
scenario.
1. Booming
Indian Economy: India’s booming economy is a major source of opportunity.
The economy of India, when measured in USD exchange rate terms, is the fourth
largest in the world, with a GDP of US $1.50 trillion (2008). It is the third
largest in terms of purchasing power parity. India is the second fastest
growing major economy in the world.
2. Economies
of scale: The organized retailers have relatively bigger pockets and they
have the ability to purchase in bulk. Due to this, they can get the benefits of
economies of scale. The products are procured at the lower prices as compared
to the normal retailer due to which they can offer those goods at the price
lower than market rates. If the other factors such as storage and
transportation are efficiently managed, this low cost procurement can lead to higher
footfall and higher revenues.
3. Private
Labels: It is generally seen that once established, most of the organized
retailers such as Big Bazaar, More etc. have launched their own private labels.
That is the packed products such as purses, rice, soft drinks etc. of their own
brand are also available. Now the customer who is shopping from these organized
stores is ultimately convinced to try those brands once. These private levels
are kept 20 – 30% lower in price than the normal goods. The customers who are
price sensitive and are getting same/approximately same quality for the reduced
price shifts their brand usage
4. Changing
Demographics: The major change is seen in the age profile senders. A new
group of shoppers are evolving who are in their mid twenties. Around seven
million people such people are entering this category every year. India if
compared with developed countries is a very young nation. Nearly two-thirds of
India’s population is below the age of 35, and nearly 50% is below 25. The main
reason in the increase in the consumption pattern and the style related
expenditure is due to this increasing youth population.
5. Store
layout leads to impulse buying: The layout of the organized retail stores
and the storage of the merchandise is done in such an attractive manner that it
lead to impulse buying. Impulse buying means the purchase of the previously
unplanned goods by the buyer. The retailers use the strategies such as storing
the related products in one section, keeping the related merchandise on one
shelf. This leads to buying of even those products by the consumer which are
not on the shopping list.
6. Urbanization
of Population: It is seen that the rural population is continuously
shifting from rural to urban areas. And the majority of them are attracted
towards this mall/modern retail culture as this is relatively new concept for
them. Due to the increasing industrialization, the rural population in India is
shifting from the rural areas and changing their focus from agriculture towards
the service sector. Some are coming to the cities for jobs, many for higher
studies, others for training, etc. Due to this industrialization, the authorities
are focusing on the development of the physical infrastructure in cities. Thus
the difference between rural and urban India is diminishing. This is also
serving as overcoming the challenge of the lack of proper infrastructure and is
acting as the boon for the retail sector.
7. Population
of Indian States & UTs: India is second largest country in term of
population in the world. It has 17.5 percent of world population. India has
only 2.4 percent of total area of world so there are many cities where
population density is much higher. So retail sector should be focused on that
areas. India population growth is higher than other countries as such U.S.A,
Brazil, Russia, China etc. India is the country of youth because more than 50
percent population is below 35 year of age.
Global Retailing Trends
1. Providing convenience: The evolving
lifestyle has created people more quality conscious. Due to the busy work
schedules, the people get very less time for leisure and shopping. Hence
whatever time they get they want to spend it with convenience. Hence globally
there is a trend to provide convenience in terms of shopping destinations where
almost all the goods are provided under one roof. The consumers are provided
convenient delivery timings and convenient payment options.
2. Technology through Mobile: If the
Indian mobile statistics are considered it is projected that India will have
over 800 million mobile subscribers by 2016. The case in the other countries is
even more advanced. Globally mobile technology is being used for:
Ø Financial
transactions.
Ø Shopping
and digital entertainment.
Ø Services
on demand.
Ø Social
networking for product promotions.
These mobile phones are also used by the retailers to send
their promotions and advertisements to the target customer these days.
3. Changing strategy of Multinational
Organizations: With increasing globalization, companies today are
redefining their strategies to align it with the external environment of the
newer market it wants to enter.
4. Store design: Biggest challenge for
organized retailing is to create a “customer-pull” environment that increases
the amount of impulse shopping. For this the retailers throughout the world are
creating such formats which enhance the shopping experience of the buyer and he
wants to stay in the store for more time. Retail chains like Music World,
Baristas are laying major emphasis in store design.
5. Customization: The retailers throughout
the world have started to customize their market models and product offerings
to meet the local needs and preferences. The retail store managers are more and
more empowered to take on the spot decisions to ensure customer satisfaction.
This is because retailers feel that the store staff is more close to the local
customer and can understand and customize his needs more effectively.
6. Multi-channel retailing: Multichannel
retailing has become the need of the day. Retailers today are not confined to
one single channel of retailing. They are reaching to the customer through
multiple channels like store based retailing, online retailing, personal
selling, Phone retailing etc. This has made the customer easy to shop by
exploring the most convenient option every time he wants to buy a product.
7. Brand Theme: Traditionally the retail
is focused mainly on the operations. But these days retailers throughout the
world have started focusing on building brand value. This brand name acts as
identity for the customer to relate himself to the quality/trust when he needs
to purchase anything.
8. Green products: Retailers today have
started highlighting their products as natural products which is environment
friendly and performs equal to the artificial and non-green products. The need
for this is felt because consumer today has started demanding the products
which are user health friendly and saved the environment in turn. Most
retailers are also focusing on certain projects for the betterment of the society
under their corporate responsibility initiatives.
9. Knowledge centric shopping: The
retailers today have not only become the point of ultimate selling. They have
developed in which they guide the customers on the different options available
and which product to buy in order to take rational decision and get value for
money.