Retail branding in India-Past, present and future
Mohit Pant

Executive Summary

This paper tries to find answers to the questions which are very pertinent in today’s competitive market of retailing, How do we decide the location for the retail outlets (metros, smaller cities)? What is the criterion for evaluating a location? Suppose you get the location correct, is it sufficient for success? Which sectors to go in for retailing (apparel, food, medicine)? What should be the format (supermarket, departmental store, specialized store). What could be the competitive advantages for the firm and most importantly what could be its nemesis? What is the format suitable for India? The paper is built on the drivers of the success of the past and takes into consideration of the shortcomings of the sector. We have looked into the factors that are making retailing sector one of the hottest in the industry.

The paper gives a step-by-step approach, starting from the factors that could be used to judge the potential of the market (Market attractiveness, Market feasibility). We propose the inventory model which  could be used to maintain the complex supply chain and derive economic benefits out of it. The paper addresses the critical issues faced by the industry (formats, sectors) which the industry should concentrate upon, in addition to this we have taken additional issues like managing channel conflict, addressing the issue of customer relationship management. How it can be leveraged by the companies to their advantage?

The last section deals with the future trends, what could be the future direction of retailing industry. Of particular interest is the alternative forms of retailing (Hariyali Kisan Bazar) adopted by DCM group which could be followed by the leaders of the industry as it is proving successful in its existing format, and the entirely new market of people over 60 years in age which forms a potentially strong customer segment. Last but not the least we would like to stress the importance of Information Technology, which could be used strategically (ERP packages, bar-coding, RFID) to bring down the cost of operation and provide more customer friendly services.

Retail branding in India-Past, present and future

Introduction

It is said that the three most important parameters, which determines the success of retailing industry, are location, location, and location. But is it really true? How do we decide the location (metros, smaller cities)? What is the criterion for evaluating a location? Suppose you get the location correct, is it sufficient for success? Which sectors to go in for retailing (apparel, food, medicine)? What should be the format (supermarket, departmental store, specialized store). What could be the competitive advantages for the firm and most importantly what could be its nemesis? What is the format suitable for India, can we go for Wal-Mart model or do we need some indigenous model, developed for our markets? This paper aims at finding the answers to such questions.

Traditional Retail Scene in India

India is the country having the most unorganized retail market. Traditionally “Kirana stores” having shop in the front & house at the back run the retail business. More than 99% retailers function in less than 500Sq.Ft of area. The Manufactures were to distribute goods through C & F agents to Distributors & Wholesalers. Retailers happen to source the merchandise from Wholesalers & reach to end-users. The merchandise price used to get inflated to a great extent till it reaches from Manufacturer to End-user. Selling prices were largely not controlled by Manufacturers.

Why does organized retailing in this segment likely to grow?

The question that comes to mind is what has changed in last decade, which is making retailing probably the hottest area to venture into? Is there some fundamental shift occurring in the market? Analyzing it on both supply and demand side we find that some of the reasons are as follows:

     From Demand Side

• Growth of nuclear family set up is leading the shift in tastes

• Fashion trend is extending from self to home.

• Entertainment at home continues to increase hence a need to do up house better.

• Shoppers are preferring to spend more time with family at home, hence more expenditure on making homes warm / cozy and lively

From Supply side

·         Large gap between expectations and reality in the offerings in the traditional market in terms of product assortment, consistency, quality, convenience and service

·         Very little presence of large national brands (except in few categories such as paints), thereby opportunities in terms of differentiation through store brands, both in terms of service / experience as well as private labels.

Why enterprises failed in Past?

In India, there have been cases of new retail ventures (including malls) being looked at by the promoter (with or without real estate background) as an "alternative land development option" rather than a "Viable new business proposition". In case of malls, many of such ventures went ahead with development without proper scientific

planning and subsequently failed. The case of Retail group “Nanz” is a case in point.

Some of the serious pitfalls of inadequate or no mall planning:

• Large investment up-front and thereafter under pressure to sell/ lease space

• Mismatched positioning of mall, therefore high footfall but no conversion

• Low control on profile of occupants

• Missed opportunity of own operation of profitable business elements such as entertainment or food services

• Inadequate "experience" factor leading to low footfall

• Missed opportunity of replicability of a successful model at other locations

Traditional business model

If we look at the present models we will find that it has been a “one-man show” where the person does all the sourcing and he is catering to all the customer, it works well for single store but is not valid for the present day multiple chain retails stores.

Present Scenario

Today’s world of retailing has become highly competitive. The key processes involved in present scenario are numerous with added complexity. The figure shows the various core functions of retailing

Proposed model for managing the supply chain
Hybrid Inventory Management System

the transactions to take place across all the active locations. Customer may buy goods from Location-A & return the same at Location-B & the system need to support these kinds of operations. All the stocks & transactions should be updated at all the locations. Transfer of merchandise across all the locations should be automated to avoid delays & mistakes. All the information will be merged at Head Office (HO) & action plan is worked upon. Operations can be managed in optimum manpower & directives can be given from one place. Slow moving or non-moving stocks can be mobilized from one Location to another & hence inventories will remain in control

Analyzing the Market

Failure of the enterprises in the past and continued struggle of some at present shows there is a need to relook at the market and correctly analyze the market and the target customers. The following parameters will serve as the benchmark to identify the format which retailer needs to adopt.

1. Market attractiveness The following have to be considered:

a.      Locational factors These include the catchment area, accessibility of the market and the profile of customers in the catchment area.

b. Market factors

·         Total number of shops: Concentration of my-category shops: 

·         Customer profile:

·         Availability of parking space:

·         Presence of competing brands: 

c. Store factors

·         Store-related factors: These include customer traffic and sales per sq foot of the anchor/key shops in the market. These

·         Customer traffic: Higher the customer traffic in the anchor shops of the market, better it is for the other shops. Sales per sq foot: It is a good indicator of space efficiency in the market. However, the benchmark should be taken from the same  

2. Market feasibility

Market feasibility considers two important factors

• Lease rentals

• Quality of retail space

Critical issues for the Retailing sector

As we discussed earlier in the paper, finding the right location is one of the issues, some of the other pertinent issues are as follows

• Finding the growth sectors

• Finding the growth categories

• Managing channel conflicts

• Customer relationship management

• Using IT as Strategic tool (for data capture and data communication)

1. Finding the growth sectors

The important consideration for retailers today is trying to figure out where the growth is going to happen? The two basic categories of organized retail are “Food” and “Apparel”. Apparel sector with the coming in of private labels (Stop from Shopper stop) offers better margin and lower cost to the companies. With major purchasing power being with urban population food forms a growing sector

2. Finding the growth categories

The next consideration is which categories will grow? If we analyze the present market and see the trends then the top four categories to emerge in the next

five years are:

• Shopping Malls

• Specialty Stores (This will include even new categories such as office products, Specialty food, optical and

• Travel apart from the already existing categories such as books, music, durables, health etc.)

• Departmental Stores

• Supermarkets

Of all these categories Malls are the ones, which are coming up fastest. There are two reasons for it. One, consumer preference shifting towards malls from traditional markets. Secondly, retailers also prefer to be located in malls in anticipation of higher footfall. This indicates an excellent potential for a mall with the following features:

• A superior well-managed leisure experience

• Targeted at all members of the household

• Comprising of shopping, dining and entertainment, all under one roof

• A wide range of products and services

• Proximity to homes

3. Managing channel conflict

It is critical to the success of the leading suppliers across sectors, especially when they set up a parallel retail channel of their own. This occurs when:

·         Modem trade enters the market with superior back-end economic advantage over the traditional ones, Example: Food World receives lower sourcing cost and extended credit from Suppliers

·         When modem trade passes this back-end advantage to the consumer directly in the form of discounting at the front-end, the conflict aggravates. Example Subhiksha, a discount grocery chain in Chennai

·         When the product brand, equity to the shopper is not overbearing and is substitutable, for. Example:, when Titan open their own exclusive stores, although it hurt the next-door multi-brand outlet, he can't do much against the suppliers.

It is therefore, for suppliers or retailers setting up additional own-retail channels to first correctly estimate the extent and nature of "would be” conflict, rather than caught off-guard at a later stage. It is important neither to get paranoid about the prospect of conflict, nor ignore it completely. Secondly, it is imperative to successfully manage conflict by integration of channel, so that one channel compliments the other rather than competing.

The 8 steps to manage conflict can be summarized as follows:

• Control retail penetration

• Improved service

• Product differentiation

• Complement channel

• Equal back-end treatment

• Transparency and communication

• Maintain full price merchandise

• Leveraging brand Strength

4. Customer Relationship Management (CRM)          

As retail paradigms in India undergo a change, as already evidenced by the emergence of stores like Food world, Little woods, Shoppers' Stop, retailers need to define their concept of service. While in-stock merchandise will be equally important for all retailers some will need to take the no-frills self service concept and develop it by excelling in making it easy for the customer to browse, select and try on merchandise, as well as ensure ease in checking-out, packing, and paying for the merchandise, with cash, credit card or accepted tender. Every retailer talks about customer service, few really do very much about it. Retailers need to define their service concept, evolve appropriate techniques to deliver the desired level of service to the consumers and measure customer satisfaction regularly to adapt and improve their service offering. That the service paradigms shall change is beyond doubt, and the leaders shall differentiate themselves increasingly not just on the merchandise but on that ever expanding dimension of superior customer service. Following would be the key parameters to measure CRM:

• Measuring customer satisfaction

• Track satisfaction, it cannot be one‑time exercise

• Benchmark satisfaction

• Measure inflection points: Customer satisfaction needs to be measured at four levels: ideal, expected, current and minimum.

• Make it actionable

• Understand the trade‑offs: For e.g. a car manufacturer wanted to know should he provide an AC near the rear seats or make driver's seat vertically adjustable

Future Trends

In addition to the present concerns the market will have to look for potentially new customers to maintain the growth of the sector. Some of the key areas where they could focus their interest are

a)      Alternative Retailing format: Cater to the mass rural population; here case of Hariyali Kisan Bazar (initiative of DCM Group) is a point in case. It aims to cater to all the occupational needs of farmers under one roof. Like Agri Inputs, Irrigation, Animal Nutrition, Agronomic Knowledge & Support, Credit for Input Purchase, and surprisingly at present it is registering more footfalls and purchase per customer than Shopper Stop.

b)       Targeting the 60 plus customers Nearly 7.2 per cent of the Indian population, that is, 73.07 million people is above 60 years half the men in this age-group are economically independent. But it is this enormous consumer segment that has been consistently ignored by marketers. This was discovered by a recently study conducted by Pulse, the McCann-Erickson's consumer insight programme.

Conclusion    

Indian retailing is at a stage of evolution where the companies have to decide what they want to do be in five years from now. The time has come for the right investments to be made in the business and for more players to enter the fray. Otherwise one may end up with a paradoxical situation where there is enough property in the form of malls and willing consumers but not enough quality retailers

References

1. The Economic Times Retail knowledge series

2. Retail Success authored by George Whalin

3. Retail Management: A Strategic Approach, Author: Barry Berman, Joel R.Evans

4. www.retailyatra.com

5. www.ksa-technopak.com

Authors:

Mohit Pant
NITIE, Mumbai
mohit_pant@im9.nitie.edu