Retail Management

BYSaurabh Gadkari Dhundiraj Gawade Unmesh Rajhans Ketan Deshmukh

DUAL -D

BALAJI INSTITUTE OF TELECOM AND MANAGEMENT

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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

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Retail management can refer to the way business is conducted in the retail sector : the very stage in which goods and services are delivered to their end users.

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A retail management is about departmental store retailing and shopping mall retailing business.

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Traditionally retailing in India can be traced to -The emergence of the neighborhood ‘Kirana’ stores catering to the convenience of the consumers

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Textiles sector with companies like Bombay Dyeing, Raymond's, S Kumar's and Grasim first saw the emergence of retail chains

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Later Titan successfully created an organized retailing concept and established a series of showrooms for its premium watches

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The latter half of the 1990s saw a fresh wave of entrants with a shift from Manufactures to Pure Retailers.

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For e.g. Food World, Subhiksha in food and FMCG; Planet M and Music World in music; Crossword and Fountainhead in books.

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Post 1995 onwards saw an emergence of shopping centers,  mainly in urban areas, with facilities like car parking  targeted to provide a complete destination experience for all segments of society

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Emergence of hyper and super markets trying to provide customer with 3 V’s - Value, Variety and Volume

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Expanding target consumer segment: The Sachet revolution - example of reaching to the bottom of the pyramid.

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At year end of 2000 the size of the Indian organized retail industry is estimated at Rs. 13,000 crore

Traditionally three factors have plagued the retail industry:

Unorganized : Vast majority of the twelve million stores are small "father and son" outlets

Fragmented : Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft.

Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-today necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

Recent changes:

Experimentation with formats: Retailing in India is evolving and a series of experiments across the country with new formats being tested out. Store design : Biggest challenge for organized retailing to create a “customerpull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like Music World, Baristas, Pyramid and Globus are laying major emphasis & investing heavily in store design.

Emergence of discount stores: Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs. Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large cineplexes, and malls, which are backed by the corporate house such as 'PVR‘ the unorganized sector is getting organized. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas.

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Multiple drivers leading to a consumption boom:  Favorable demographics  Growth in income  Increasing population of women  Raising aspirations : Value added goods sales

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Food and apparel retailing key drivers of growth

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Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-income households.

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More successful in cities in the south and west of India. Reasons range from differences in consumer buying behavior to cost of real estate and taxation laws.

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Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption  ITC is experimenting with retailing through its e-Choupal and Choupal Sagar – rural hypermarkets.  HUL is using its Project Shakti initiative – leveraging women self-help groups – to explore the rural market.  Mahamaza is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets.

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IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe.

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‘e-tailing’ slowly making its presence felt.

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Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the web.

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India is rated the fifth most attractive emerging retail market: a potential goldmine.

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Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion

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As per a report by KPMG the annual growth of department stores is estimated at 24%

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Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney.

Retail Sales in India

How to increase the brands share of usage within a household….

JOINT FAMILY

NUCLEAR FAMILY

SINKS DINKS SINGLES

Their would be a decline.

Customers of this Decade

Customers of the Next decade

We are strengthening our positioning of the “Complete Department Store” to serve the whole household. For this Store brand needs to be developed like a FMCG brand which could be used by almost every family member, more and more times. The teenagers would be the next big customers.

Entertainment

Trends in Retailing

Convenience and Efficiency

Customer Management

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Indian retail is fragmented with over 12 million outlets operating in the country. This is in comparison to 0.9 million outlets in USA, catering to more than 13 times of the total retail market size as compared to India

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India has the highest number of outlets per capita in the world widely spread retail network but with the lowest per capita retail space (@ 2 sq. ft. per person)

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Annual turnover of Wal-Mart (Sales in 2001 were $219 billion) is higher than the size of Indian retail industry. Almost 100 times more than the turnover of HUL (India's largest FMCG company).

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Wal-Mart - over 4,800 stores (over 47 million square meters) where as none of India's large format store (Shoppers' Stop, Westside, Lifestyle) can compare.

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The sales per hour of $22 million are incomparable to any retailer in the world. Number of employees in Wal-Mart are about 1.3 million where as the entire Indian retail industry employs about three million people.

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Developed economies like the U.S. employ between 10 and 11 percent of their workforce in retailing (against 7 percent employed in India today).

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60% of retailers in India feel that the multiple format approach will be successful here whereas in US 34 of the fastest-growing 50 retailers have just one format

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Inventory turns ratio: measures efficiency of operations. The U.S. retail sector has an average inventory turns ratio of about 18. Many Indian retailers KPMG surveyed have inventory turns levels between 4 and 10.

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Global best-practice retailers can achieve more than 95 percent availability of all SKUs on the retail shelves (translating into a stock-out level of less than 5 %).The stock-out levels among Indian retailers surveyed ranged from 5 to 15 percent.

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Greater per capita income  Increase in disposable income of middle class households  20.9%* growth in real disposable income in ’99-’03. Growing high and middle income population  Growing at a pace of over 10%* per annum over last decade Affordability growth  Falling interest rates  Easier consumer credit  Greater variety and quality at all price points

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Growth determining factors  Government Policy  Infrastructure development  GDP growth  Employment generation and job creation  In several new sunrise industries  Implies greater purchasing power

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The urban consumer  Getting exposed to international lifestyles  Inclined to acquiring asset  More discerning and demanding than ever

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No longer need-based shopping  Shopping is a family experience Changing Mindset  Increasing tendency to spend  Post Liberalization children coming of age  100 mn 17-21 year olds*. Tend to spend freely. Greater levels of education

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Investment in technology 

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Benefits of FDI

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Cold storage chains solve the perennial problem of wastage Greater investment in the food processing sector technology Better operations in production cycle and distribution

Better lifestyle 

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Greater level of wages paid by international players usually More product variety Newer product categories Economies of scale to help lower consumer price Increased purchasing capacity of consumerszz

Cash and carry

Convenience store

Discount store

Department store

Super market

Hyper market

Specialty store

Exclusive brand outlet

Multi-brand outlet

Category killers

kiosks

India’s number of Domestic grocery chains and Early Foreign Entrants:

Place (store location)

Product (merchandise)

Target market Channel structure

Product development Product management

Channel management Retailer image

Product features and benefits Branding

Retail logistics Retail distribution

Packaging After-sales services

Promotion

People element

Developing promotional mixes Advertising management

Staff capability Efficiency

Sales promotion Sales management

Availability Effectiveness

Public relations Direct marketing

Customer interaction Internal marketing

Price Costs Profitability Value for money Competitiveness

Incentives Quality Status

Process element Order processing Database management

Service delivery Queuing system Standardisation

Type of Retailer

Service Level

Assortment

Price

Gross Margin

Department Store

Mod Hi-High

Broad

Mod-High

Mod High

Specialty Store

High

Narrow

Mod-High

High

Supermarket

Low

Broad

Moderate

Low

Convenience Store

Low

Med-Narrow Mod High

Mod High

Drugstore

Low-Mod

Medium

Moderate

Low

Full-line Discounter

Mod-Low

Med-Broad

Mod Low

Mod Low

Specialty Discounter

Mod-Low

Med-Broad

Mod Lo-low Mod Low

Warehouse Clubs

Low

Broad

Low-lower

Off-price Retailer

Low

Med-Narrow Low

Low

Restaurant

Low-High

Med-Narrow Low-High

Low-High

Low

Controllable Variables:

Uncontrollable Variables:

•Store location •Managing business •Merchandise management and pricing •Communicating with customer

•Consumers •Competition •Technology •Economic conditions •Seasonality •Legal restrictions

Retail Strategy

Identify the most attractive markets in which to operate

Identify the most attractive sites that are available within each market

Select the best site(s) available

 Retail Gravity Theory  Saturation Theory  Buying Power Index

 Suggests that there are underlying consistencies in shopping behavior that yield to mathematical analysis and prediction based on the notion or concept of gravity. 

Reilly’s Law of Retail Gravitation based on Newtonian gravitational principles, explains how large urbanized areas attract customers from smaller rural communities.

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where Dab is the breaking point from city A, measured in miles along the road to city B; d is the distance between city A and city B along the major highway; Pa is the population of city A; and Pb is the population of city B.

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d Dab

= Pb 1+ Pa

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Examines how the demand for goods and services of a potential trading area is being served by current retail establishments in comparison with other potential markets.

 Retail Store Saturation is a condition where there is just enough store facilities for a given type of store to efficiently and satisfactorily serve the population and yield a fair profit to the owners.

 Under stored is a condition in a community where the number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor.

 Overstored is a condition in a community where the number of stores in relation to households is so large that engaging in retailing is usually unprofitable or marginally profitable.

 Index of Retail Saturation (IRS) is the ratio of demand for a product (households in the geographic area multiplied by annual retail expenditures for a particular line of trade per household) divided by available supply (the square footage of retail facilities of a particular line of trade in a geographic area). IRS = (H X RE)/RF    

Where IRS is the index of retail saturation for and area; H is the number of households in the area; RE is the annual retail expenditures for a particular line of trade per household in the area; RF is the square footage of retail facilities of a particular line of trade in the area (including square footage of the proposed store).

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Buying Power Index (BPI) is an indicator of a market’s overall retail potential and is composed of the weighted measures of effective buying income (personal income, including all nontax payments such as social security, minus all taxes), retail sales, and population size. BPI = 0.5(the area’s percentage of effective buying income) + 0.3(the area’s percentage of retail sales) + 0.2(the area’s percentage of population)

It is not possible for Indian Manufacturers to price their products separately for different states which have different tax rates. Consequently, they have to manufacture the product with one single rate which is applicable all over the country. The manufacturers usually prints the price prevailing in the state with the highest tax rate. The problem with this is that it means consumers in states with lower tax rates will potentially have to pay a price which they are not intended to pay.

Sales Density

Conversion Rate

Inventory Turnover ratio

Wastage

Shrinkage

How do you monitor your retail business performance?.. following are the number of metrics which measure the financial and operational aspects of a Retail Business.

There are three scenarios of power play between the key players in any Retail Economy. In all scenarios the unorganized retail sector looks like the one with the least power.

The green box has the future WalMart of India.. The light green box - players who grow large without being efficient and will be prime targets for takeovers by the leaders in the next five years. The bright yellow box - Laggers who are playing a wait and watch policy… the niche players who want to play only in specialized formats or categories and the regional players. Those that are efficient may remain in this category while others who are not will fall into the exiters box . The light yellow box contains exiters who will potentially exit the retail race over the next five years.

Some Retail Promotional Tactics: 1. 2. 3. 4.

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Investment buying False Prices New Product Charges Shelf Space charges

Almost all Retail promotions are Supplier funded. The fact is if the promotions are not supplier funded , the retailer would end up incurring loses

Broad objective being  Bring traffic into the store  Move the traffic to various selling areas of the store  Entice customers into purchasing.

Paid

Unpaid

Advertising; sales promotion; store atmosphere; visual merchandising

Personal selling

Publicity

W.O.M

Impersonal

Personal

Shelf space is a scarce resource for a retailer. Shelf space allocation involves the distribution of appropriate amount of shelf space among different products, together with their locations, in a supermarket in such a way that the total profits and/or customer satisfaction are maximized.

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estimated India’s total retail market at US$ 202.6 billion which is expected to grow at a compounded 30 per cent over the next five years.

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With the organized retail segment growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010.

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The share of modern retail is likely to grow from its current 2 per cent to 15-20 percent over the next decade

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Over next two years India will see several Indian retail businesses attaining a critical mass as growth in the industry picks up momentum driven by two key factors:  Availability of quality real estate and mall management practices  Consumer preference for shopping in new environments

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Wal-Mart : huge plans for India.

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New York-based high-end fashion retailer Saks Fifth Avenue has tied up with realty major DLF Properties to set up shop in a mall in New Delhi.

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Tommy Hilfiger, retailer of apparels, expects to open one store each in Delhi, Ahmadabad, Lucknow and Bangalore in the next four months.

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Lack of differentiation among the malls that are coming up. One option may be to look at specialization.

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Poor inventory turns and stock availability measures - retailers clearly need to augment their operations.

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Operations of retailers and suppliers are not integrated. Efficient replenishment practices practiced in the Indian auto and autocomponent industry can be leveraged to implement efficient supply chain management techniques.

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Supplier maturity, in terms of adherence to delivery schedules and delivering the quantity ordered, is an issue

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Sales tax laws - lead to retailers having state-level procurement and storage leads to Indian retailers having higher inventories. VAT has helped alleviate this a bit.

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Increased adoption of IT and shrinkage management will be a critical area.

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Supply chain and customer relations followed by merchandising, facilities management and vendor development are areas which have significant gaps and proactive training is a key imperative for overcoming these.

Thank you