INTRODUCTION TO RETAIL MANAGEMENT

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Retailing may be defined as, “The sale of goods or commodities in small quantities directly to consumers.”

Retailing is a distribution channel function where one organization buys products from supplying firms or manufactures the product themselves, and then sells these directly to consumers.  A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a consumer purchases products. 

In the majority of retail situations, the organization from which a consumer makes purchases is a reseller of products obtained from others and not the product manufacturer. In the Distribution Decisions Tutorial, some manufacturers also operate their own retail outlets in a corporate channel arrangement.  While consumers are the retailer’s buyers, a consumer does not always buy from retailers.  For instance, when a consumer purchases from another consumer (e.g., eBay) the consumer purchase would not be classified as a retail purchase.  This distinction can get confusing but in the US and other countries the dividing line is whether the one selling to consumers is classified as a business (e.g., legal and tax purposes) or is selling as a hobby without a legal business standing.

As a reseller, retailers offer many benefits to suppliers and customers. For consumers the most important benefits relate to the ability to purchase small quantities of a wide assortment of products at prices that are considered reasonably affordable.  For suppliers the most important benefits relate to offering opportunities to reach their target market, build product demand through retail promotions, and provide consumer feedback to the product marketer.

Retailing consists of the sale of goods or merchandise from a fixed location, such as a department store or kiosk, or by post, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be individuals or businesses. In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either directly or through a wholesaler, and then sells smaller quantities to the end-user. Retail establishments are often called shops or stores. Retailers are at the end of the supply chain. Manufacturing marketers see the process of retailing as a necessary part of their overall distribution strategy.

Retailing scenario in India

Retail in India is still at a very early stage. Most retail firms are companies from other industries that are now entering the retail sector on account of its amazing potential. There are only a handful of companies with a retail background. One such company is Nilgiri’s from Bangalore that started as a dairy and incorporated other areas in its business with great success. Their achievement has led to the arrival of numerous other players, most with the backing of large groups, but usually not with a retail background. Most new entrants to the India retail scene are real estate groups who see their access to and knowledge of land, location and construction as prime factors for entering the market.

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ew retail stores have traditionally started operations in cities like Mumbai and Delhi where there has been an existing base of metropolitan consumers with ready cash and global tastes. The new perspective to this trend is that new entrants to the retail scenario should first enter smaller cities rather than focusing entirely on the metro’s. Spending power in India is not concentrated any more in just the 4 metros (Delhi, Mumbai, Chennai, and Kolkata). Smaller but upcoming cities like Chandigarh, Coimbatore, Pune, Ahmedabad, Baroda, Trivandrum, Cochin, Ludhiana, Simla etc will fast be catching up to the metro’s in their spending capacity.

Cities in south India have taken to the supermarket style of shopping very eagerly and so far the maximum number of organized grocery and department stores are in Chennai, Bangalore and Hyderabad. The north has a long way to go to come up to par. International stores now prefer to gauge the reaction of the public in these cities before investing heavily in a nation-wide expansion. Milou, the Swiss children’s wear retailer, recently opened up its first store in Chennai, bypassing Delhi and Mumbai.

Besides the urban market, India’s rural market has just started to be seen as a viable option and companies who understand what the rural consumer wants will grow to incredible heights. The bulk of India’s population still live in rural areas and to be able to cater specifically to them will mean generating tremendous amounts of business.
Business, specifically retail business must focus on the most important factor in the Indian mind-set----Value for Money. Indian consumers are ready to pay almost any amount of money for a product or service as long as they feel they are getting good Value for Money. This is often misconstrued as being tight fisted or interested in lower priced and/or lower quality products.

In the past decade, international companies entering India (Levi’s, Pepe, Tommy Hilfiger, Marks and Spencer, Mango) have generally offered moderately priced to expensive items. They have aimed for the upper-middle and rich classes of Indian society. These are consumers who travel abroad often and can buy these items overseas quite easily. Instead, international companies should be focusing on the lower and lower-middle classes of India. This is where the real potential is, the aspiration class of consumers who want to lead a better lives and believe in education, hard work and absorb knowledge from every possible angle. The phenomenal success of Big Bazaar, Pantaloons version of Wal-Mart, is proof that there is enormous potential in providing products and services to this class of consumers.

Indians are very curious by nature and will try everything at least once before rejecting it. The initial success of KFC in India proved that Indians could make a success of most new ventures entering India but rejects a concept once they have tried and tested the offering and found nothing worth going back for. The menu at KFC was rather boring and insipid to the Indian consumer who is used to the innumerable combinations and permutations of street food. For their second run in India, KFC re-thought its menu and has been very successful marketing at specific groups within India, like the Punjabi’s who have quite a history of loving the Chicken leg and have made the Chandigarh outlet a huge success.

Companies entering in India cannot have just one game plan to apply to the entire country as the people, their tastes, the lifestyle, the budgets etc are all too divergent. International entrants must enter each market specifically focusing only on that area to be successful.

• Metros: Delhi, Mumbai, Chennai and Kolkata
• Second rung but will soon outpace metros: Hyderabad, Bangalore, Ahmedabad, Gurgaon, Pune, Baroda
• Small and developing fast: Chandigarh, Coimbatore, Trivandrum, Faridabad, Ludhiana, Cochin, Simla, Mysore

The Indian retail sector can be broadly classified into:

• Food retailers
• Health & beauty products
• Clothing & footwear
• Home furniture & household goods
• Durable goods
• Leisure & personal goods

Malls in India

Over the last 2-3 years, the Indian consumer market has seen a significant growth in the number of modern-day shopping centers, popularly known as ‘malls’. There is an increased demand for quality retail space from a varied segment of large-format retailers and brands, which include food and apparel chains, consumer durables and multiplex operators. Shopping-centre development has attracted real-estate developers and corporate houses across cities in India. As a result, from just 3 malls in 2000, India is all set to have over 220 malls by 2005. Today, the expected demand for quality retail space in 2006 is estimated to be around 40 million square feet. While previously it was the large, organised retailers – with their modern, up-market outlets, and direct consumer interface- who had been a key factor driving the growth of organised retail in the country, now it is the malls which are playing the role. Factors such as availability of physical space, population densities, city planning, and socio-economic parameters have drive the Indian market to evolve, to a certain extent, its own definition of a ‘mall’. For example, while a mall in USA is 400,000 to 1 million sq.ft. In size, an Indian version can be anywhere between 80,000 sq.ft. and 500,000 sq.ft. By 2005, total mall space in the 6 cities of Mumbai, Bangalore, Hyderabad, Chennai, Kolkata, and

National Capital Region (Delhi, Naiad, Gurgaon) is expected to increase to over 21.1 million sq. ft. Compared to other big cities, Kolkata and Hyderabad are relatively new entrants in the mall segment, but are witnessing quick growth. Smaller cities like Pune, Ahmedabad, Lucknow, Ludhiana, Jaipur, Chandigarh and Indore, are also expected to see a formidable growth in the growth of malls in the near future. But malls in India need to have a clear positioning through the development of differential product assortment and differential pricing, in order to compete effectively in a growing mall market. Segmentation in malls, like up-market malls, mid-market malls, etc. , proper planning, correct identification of needs, quality products at lower prices, the right store mix, and the right timing, would ensure the success of the ‘mall revolution’ in India.

Challenges of Retailing in India

Retailing as an industry in India has still a long way to go. To become a truly flourishing industry, retailing needs to cross the following hurdles:

• 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.