Consentia on Commerce and Economics

Retailing in India: The New Economic Mantra

INTRODUCTION

India is a developing ECONOMY which liberalized its economy in 1991 with the introduction of New Economic Policy. Retailing is one the most developing factor in Indian economy in accounts for 15% of its GDP. As a reference made in a leading case, the term retail is interpreted by the high court of Delhi “as the sale of good or commodities to ultimate consumers, as opposed to the sail of further distribution.”[1] Thus, retailing can be define as the place where the seller i.e. retailer and ultimate consumer met for selling of goods for final their consumption in contrast to wholesaling , which is regarded as the selling of merchandise to any other retailer. Indian retail market is vast, and has huge potential for growth and development. It accounts for 14-15% of its GDP and is estimated to be US $450 billion with expectation to reach US $804.06 billion in 2015 and one of the fastest growing retail market in the world with three year compounded annual growth rate of 46.46%  and “second largest employer after agriculture, employing 40 million or 3.3 % of Indian Population”[2]. Organised retailing refers to trading activities conducted by licensed retailer, i.e. those who are registered for Sales-Tax, Income-Tax, etc. These include the hypermarkets, retail chains and privately owned large retail business, whereas, unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing. These comprises of local kirana shops, paan/beedi shops, convenience stores, pavement vendors, etc. These generally do not pay government duties and taxes.[3] Organised retail in India is on a developing step amounting only to 3-4% of total retailing and growing at 15-20% and expected to reach US $100 by 2015. India’s economy grows at an estimate of 8% per year, making retail sector the most fertile and profitable to the foreign and domestic investors. In India Foreign Direct Investment is defined, as an investment by non-resident entity/person resident in capital of the Indian companies under Schedule 1 of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations 2000. To put it in a more simple term, FDI is the capital inflow from abroad that is investment by the foreign investors in the economy, other than to which they belong. As per the valuation done by U.S. – India Business Council (USIBC), single brand retail market is valued at US $ 27 billion and likely to grow to reach a value of US $ 100 billion in next five years. FDI in single-brand retail was adopted to allow the Indian consumers to have an access to foreign brands. At the initial level 51% was allowed in 2006 but later raised to 100% in 2011.  Since the liberalization of the economy there has been a visible impact on the income level of the middle class, which as a whole is upwardly mobile, with a huge disposable income in hand. The huge proportion of young population in India implies a demographic dividend for the retail sector since this portion of the population is more brand conscious and ready for spending more on consumer goods. As against this view, the critics of this emerging phenomenon point to the inevitable negative impacts of organized chains on the unorganized and small retailers who are under the threat of simply being wiped out by the powerful organized networks of giant retail chains.“ The livelihood of five crore traders across the country is at stake if the government does not rethink the retail strategy” says MohanGurnani, President of the Federation of Associations, Mumbai who is a leading protestor against the government policy to slowly facilitate the boom of organized retail.

 Retailing

The word retailing has its origins in the French verb “retailer‟, which means “to cut up”, and refers to one of the fundamental retailing activities which is to buy in larger quantities and sell in smaller quantities. For example, a convenience store would buy tins of beans in units of two dozen boxes, but sell in single-tin units. However, a retailer is not the only type of business entity to ‘break bulk’. Wholesalers also buy in larger quantities and sell to their customers in smaller quantities. It is the type of customer, rather than the activity, that distinguishes a retailer from other distributive traders; the distinction being that a retailer sells to final consumers, unlike a wholesaler who sells to a retailer or other business organizations. A generally accepted definition of  a retailer is ‘any establishment engaged in selling merchandise for personal or household consumption and rendering services incidental to the sale of such goods’.[4]

An important aspect of the current economic scenario in India is the emergence of organized retail.  There has been considerable growth in organized retailing business in recent years and it is poised for much faster growth in the future. Major industrial houses have entered this area and have announced very ambitious future expansion plans. Transnational corporations are also seeking to come to India and set up retail chains in collaboration with big Indian companies. However, opinions are divided on the impact of the growth of organized retail in the country.  Concerns have been raised that the growth of organized retailing may have an adverse impact on retailers in the unorganized sector.  It has also been argued that growth of organized retailing will yield efficiencies in the supply chain, enabling better access to markets to producers (including farmers and small producers) and enabling higher prices, on the one hand and, lower prices to consumers, on the other. In the context of divergent views on the impact of organized retail, it is essential that an in-depth analytical study on the possible effects of organized retailing in India is conducted.[5]

 TYPES OF RETAIL

Organised

Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. However this is set to change with the entry of the corporate sector into the retail domain.

Unorganised

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.[6]

 Difference between Organised and Unorganised Retail

The Organised retailing refers to the trading activities undertaken by licensed retailers that are 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 a) Hypermarkets: They store products of multiple brands comprising food items and non-food items’) Supermarkets: These are self service stores selling food and personal care products. E.g. Subhiksha  c) Departmental Stores: Retails branded goods in non-food categories.E.g. Shoppers stop. d) Speciality Chains: These focus on branded product or product category. E.g. Bata Convenience Stores. e)Malls: A huge enclosure which has different retail formats. E.g. Pantaloon Retail[7] .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 [8].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.[9]

 Advantages of Organized Retail in India-

  1. Enhanced Welfare Gains for Consumers– The emergence of organized retail undoubtedly gives consumers a wider choice of goods, more convenience, and a better shopping environment, among other benefits. This is feasible because organized retail can take several formats, from small neighbourhood stores in densely populated cities with high real estate prices to large air-conditioned malls in the periphery where real estate is cheaper. Organized retail can appear small but spread in all local markets, providing the convenience of a neighbourhood kirana store but with procurement on a mass scale that keeps prices low and provides greater variety.

2. Gains for Farmers- Organized retail will result in a complete revamp of the agricultural supply chain in the country. A recent study by CRISIL has estimated a current annual total loss of about Rs. 1,000 billion in the agricultural supply chain, 57 per cent of which is due to avoidable wastage and the rest due to avoidable costs of storage and commissions (CRISIL Research, June 2007). Organized retailers have already started procuring fruit and vegetables from farmers directly bypassing the various intermediaries who add more costs than value to the food chain. They are investing heavily on logistics in the form of centralized warehousing and distribution centres, transport and cold storage, either directly or through engaging third party logistics companies. They are also employing a large number of unskilled workers for sorting, grading, packaging and labelling. All these will enhance farmer’s realizations, improve quality of products at the shop and reduce the ultimate consumer price.

3. Link with Manufacturing-The Planning Commission has identified four sectors as the major employment generating sectors for the Eleventh Plan period, 2007-12. They are: (i) food processing industry; (ii) textiles and clothing; (iii) tourism; and (iv) construction. Of these sectors, all except tourism are getting a fillip with the growth of organized retail. Again, the small and medium industry (SMI) sector is getting advantages with the emergence of organized retailers by becoming their suppliers. Modern retail will catalyze the development of the SMI sector in the country.

4. Boost to Exports- Organized retail’s link with exports comes through foreign players. International retailers look for sources around the world and a country in which they operate

Becomes a source for their global sales. Some of the international retailers that have plans for India in the future have already developed suppliers in the country and have started exporting from India. For example, Wal-Mart exported an equivalent of US$ 600 million, and IKEA about Euros from India in 2006-07.

5. Impact on Growth and Productivity– Organized retail will enhance the growth and productivity of India by helping the farmers, consumers and other sectors by providing high quality products.

Organized retailing will remove various inefficiencies that characterize the present Indian distribution system, which in turn will provide better price for the farmers and suppliers on the one hand, and lower prices for consumers, on the other.

6. Improvement of Government Revenues- Another significant advantage of organized retailing is its contribution to government revenues. Unorganized retailers normally do not pay taxes and most of them are not even registered for sales tax, VAT, or income tax. Organized retailers, by contrast, are corporate entities and hence file tax returns regularly. The growth of organized retail business will be associated with a steady rise in tax receipts for the central, state, and local governments.

7. Impact on Employment and Prices- The growth of organized retail will enhance the employment potential of the Indian economy. While providing direct employment in retail, it will drive the growth of a number of activities in the economy which in turn will open up employment opportunities to several people. It may adversely affect employment in unorganized retail and the trade intermediaries associated with the traditional supply channels but the additional jobs created will be much higher than those that are lost. An important point to be noted is that while the jobs that organized retail displaces are the low-end, low-quality, underproductive ones, the new jobs created are the high quality, productive ones. It also generates a number of jobs for unskilled labour for the tasks of sorting, grading, labelling, etc.[10]

B. Advantages of unorganized retail

1. Employment Impact– According to ECR report, unorganized retail outlets employ more family labour than hired labour; on an average they employ 1.5 persons per shop from the family, and hired employees of 1.1 persons in India. It is a way of livelihood for Indian people.

2. Location Advantage for the Unorganized Retailers- Location is a comparative advantage for unorganized retailers as the mean distance to the residence for consumers at unorganized outlets is 1.1 km compared to 2.6 km for consumers at organized outlets. A majority of consumers walk to traditional retailers because it is convenience to reach.

3. Credit Facilities- Consumers get credit facilities in small unorganized retail stores and can make a deferred payment which is not possible in organized retail stores.

  1. Purchase of small quantities- It’s a typical attitude of Indians to purchase in small quantities of various goods which they can purchase from small shops than organized retail stores.[11]

 IMPACT OF ORGANISED RETAIL OVER UNORGANISED RETAIL

  • Independent stores will close, leading to massive job losses. In Organised retail few thousand jobs may be created but millions will be lost.
  • They have efficiency at supply chain management leads to “direct” procurement of goods from the supplier. In addition to eliminating the “middle-man”, due to its status as the leading retailer, suppliers of goods also bends over backwards to drop prices in order to assure consistent cash flow. There is the fear that this may not benefit the farmer, or the suppliers of these malls and retail stores.[12]
  • The small retailer and the middle man present in the retail industry plays a large part in supporting the local economy, since they typically themselves procure goods and services from the area they have their retail shops in. This leads to increased economic activity, and wealth redistribution. With large, efficient retailers, the corporate profits are not spent in the areas where they’re generated, hence killing the local economy.[13]
  • They will lower prices to dump goods, get competition out of the way, become a monopoly, and then raise prices. We have seen this in the case of the soft drinks industry. Pepsi and Coke came in and wiped out all the domestic brands.
  • India doesn’t need foreign retailers, since home grown companies and traditional markets may be able to do the job.
  • Work will be done by Indians, profits will go to foreigners.
  • Remember East India Company. It entered India as a trader and then took over politically.
  • There will be sterile homogeneity and Indian cities will look like cities anywhere else.
  • The government hasn’t built consensus.[14]

 SAMPLING DESING

  1. Sampling unit Respondents of (few malls)
  2. Size of sample 100 respondents
  3. Sample Method Random Sampling
  4. Types of questionnaire Close ended

ANALYSIS OF DATA

Data collection through questionnaire is being processed. This processed data is:

  1. Age wise distribution

a)      <20     [12 RESPONDENTS]

b)     20-29  [45 RESPONDENTS]

c)      30-39  [25 RESPONDENTS]

d)     >40     [18 RESPONDENTS]

  • On the basis of above respondents the figure shows that maximum respondents i.e. 45 out of 100 are young age people. It means maximum no. Of customers belong to young age group.
  1. Gender wise distribution

a)      MALE      [58 RESPONDENTS]

b)     FEMALE [42 RESPONDENTS]

 On the basis of above respondents the figure shows that maximum respondents i.e. out of 100 are males. It means maximum no of customers are male in mall due to family responsibility.

  1. Education wise distribution

a)      HIGH SCHOOL                                   [08 RESPONDENT]

b)     LESS THEN GRADUATION              [12 RESPONDENTS]

c)      GRADUATION                                     [32 RESPONDENTS]

d)     POST GRADUATE                                [32 RESPONDENTS]

e)      PROFESSIONAL QUALIFICATION  [16 RESPONDENTS]

  • On the basis of above respondents the figure shows that maximum respondents i.e. 32 out of 100 are graduate and 32 out of 100 are post graduate. It means maximum no of customers are educated and aware about retail store.
  1. Income wise distribution

a)      LESS THEN Rs 20,000                  [28RESPONDENTS]

b)     BETWEEN Rs 20,000 TO 35,000  [48RESPONDENTS]

c)      BETWEEN Rs 35,000 TO 50,000  [20RESPONDENTS]

d)     MORE THEN 50,000                     [12RESPONDENTS]

 On the basis of above respondents the figures show that maximum respondents i.e. 48 out of 100 are having monthly income between Rs 30,000 to 40,000. It means maximum no. of customer are belonging to upper middle class.

  1. Which type of place do you visit frequently for your shopping needs?

a)      Supermarket   [80 respondents]

b)     Wholesalers    [8 respondents]

c)      Local Stores    [12 respondents]

  • On the basis of above respondent the figure shows that maximum respondents i.e. 80 out of 100 are agree that they visit frequently shopping malls for their shopping neends. It means maximum no of customers are preferred shopping malls for purchasing.

  1. From where you would prefer to buy products?

a)      single brand stores       [24respondents]

b)     multi brand stores        [60respondents]

c)      factory outlet                [4 respondents]

d)     local big retail store     [12 respondents]

  • i.e. 60 out of 100 are preferred multi branded store for shopping. It means maximum no of customers are time conscious and desired for many brand under one roof.
  1. Which one from malls/ local stores (kirana stores) is more convenient for all your shopping needs?

a)      Malls            [72 respondents]

b)      Local stores  [28 respondents]

  • i.e. 72 out of 100 are preferred shopping in malls for all their shopping needs. It means maximum no of customers are feel good in shopping for their needs in malls because they can’t get everything from there under one roof.
  1. What are the prime factors for shopping in malls?

a)      Variety in product   [10 respondents]

b)      Serviceability

c)      Discount

d)     Mode of payment

e)      All                           [90 respondents]

  • I.e. 90 out of 100 are preferred shopping in malls because of the various factors which make the whole shopping experience good.
  1. What are prime factors for shopping in kirana stores?

a)      Emergency buying        [30 respondents]

b)      For grocery items only  [25 respondents]

c)      Discounts                      [30 respondents]

d)     Serviceability                [15 respondents]

  • i.e. people prefer shopping from kirana stores just when they need something urgent and grocery items only. It shows the limited shopping experience one customer have with these stores.
  1. What do you look for in a product during your purchase?

a)      Price                       [60 respondents]

b)     Brand name            [12 respondents]

c)      Customer service    [16 respondents]

d)     Variety availability  [12 respondent]

  • i.e. 60 out of 100 preferred price during their purchasing. It means maximum no of customers are price conscious so maximum customers belong to middle class.
  1. When do you prefer to shop most in store?

a)      During sales                        [54 respondents]

b)     During fresh season stock   [18  respondents]

c)      During discount                  [24 respondents]

d)     When required                    [4 respondents]

  • On the basis of above respondent the figures shows that maximum respondent i.e. 60 out of 100 are preferred shopping during sales. It means maximum no of customers did not compromise quality with discount and offers.
  1. How frequently you visit the stores.

a)      <15 days        [60 respondents]

b)     15-30 days     [28 respondents]

c)      1-2 months    [4 respondents]

d)     >2 months     [8 respondents]

  • On the basis of above respondents the figure shows the maximum respondents i.e. 60 out of 100 are visited the store within one month. It means maximum no of customers are visiting the stores monthly.

 FINDINGS

  • Customer’s preferences for grocery shopping are gradually shifting from local kirana stores to organised convenience stores.
  • Age is one of the most important factors responsible for changing preferences of customers
  • Payments through credit cards is increasing purchases from convince store
  • Brand choice of customers is changing and this is also influencing shift from kirana to convenience store.
  • Maximum no of customers is are male in mails due to family responsibility
  • It means maximum no of customers having nuclear family.
  • Maximum no. of customers is belonging to upper middle class.
  • Maximum no of consumers are price conscious so the maximum no. of consumer belong to the middle class.
  • Maximum no. of customer did not compromise with quality with discount and other offers.

 Limitations

Every report has its pros and cons so mine also have some limitations. They can be pointed as:

  • Sample size restricted to 100 only which was very less according total population.
  • The responses given by respondent were not always accurate because the respondent gave the response according to their understanding.
  • Survey is the time consuming process but the time to collect the data for research was very less.
  • Sometimes the respondents are not willing to fill the questionnaire and hence the resultant may not be correct.

CONCLUSION

The past 4-5 years have seen increasing activity in retailing. And, various business houses have already planned for few investments in the coming 2-3 years. And though the retailer will have to face increasingly demanding customers, and intensely competitive rivals, more investment will keep flow in. And the share of organised sector will grow rapidly. Retailing in India will surely poised for a takeoff and will provide many opportunities both to existing players as well as new entrants. The country is witnessing a period of boom in retail trade, mainly on account of a gradual increase in the disposal incomes of the middle and upper class households. More and more corporate houses including large real estate companies are coming into the retail business, directly or indirectly, in the form of mall and shopping centre builders and managers.

New formats like super markets and large discount and department stores have started influencing the traditional look of bookstores, furnishing store and chemists shop. The retail revolution, apart from bringing in sweeping, positive changes in quality of life in the metros and bigger towns, is also bringing in slow changes in life style in the smaller towns of India. Increase in literacy, exposure to media, greater availability and penetration of a variety of consumers goods into the interior of the country, have all resulted in narrowing down the spending difference between the consumer of larger metros and those of smaller towns. Lastly I want to conclude my project in some points-

v  The consumer are attracting towards shopping malls and retail outlets.

v  The shopping malls and retail outlets are targeting to middle class customer because the purchasing power of this class is rapidly growing as well as the class is also growing.

v  The young generation in fashion and show off conscious so retail outlet are mainly focus on them.

v  Most of the family wants to purchase from big showrooms and malls because there are no bargaining system so they have a trust that there is no cheating.

v  The main strength of most of the retail outlets are providing attractive offers to attract customers.

v  Big retail is running customer loyalty programme which has increased profit and no of customers.

[1] Federation of association of Maharashtra vs. union of India and others(2005(79)DRJ 426)

[2]National Sample Survey Organization (NSSO) 2009-10

[3] http://www.Investopedia.com

[4] http://www.iilm.edu/iilm-online/Retail%20Management%20Self-Learning%20Manual.pdf

[5] Working Paper No. 222 Impact of Organized Retailing on the Unorganized Sector Mathew Joseph Nirupama Soundararajan Manisha Gupta Sanghamitra Sahu September 2008; INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS ; http://www.icrier.org/pdf/Working_Paper222.pdf

[6] Retail Management, Levy and Weitzs

[7] ICRIER journal paper, September 2008

[8] http://www.fibre2fashion.com

[9] P. Goswami M. Mishra,2009, Would Indian consumers move from kirana stores to organised retailers when shopping for groceries, Asia Pacific Journal of Marketing and Logistics, vol.20, No. 1

[10] http;// ssrn.com/abstract=994238

[11] ICRIER journal paper, September 2008

[12] Marketing Management in India Perspective, V.S. Namakumari

[13] http://www.retailindia.net

[14] http://www.bussinessworld.in

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