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Monday, November 13, 2017

Organised and Unorganized Retailing In India

Unit – 4: Organised and Unorganised retailing in India

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.

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

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.

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.