Chapter III Recent Trends in Retail Sector
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“To study the Impact of Retail Malls on Grocery Shops with special Ph.D. reference to select FMCG Products in Nashik and Pune Cities” Thesis 2018 Chapter Recent Trends III in Retail Sector Introduction Key challenges in Indian retail Retail Industry: Global Scenario industry Retail Industry: Indian Scenario Organised Retailing Retail Formats in India Unorganised Retailing Key drivers to the exponential Fast Moving Consumer Goods growth of the Indian retail industry (FMCG) Government initiatives for growth Role of E-Commerce in shopping of the retail sector Profile of Nashik City Merger & Acquisition in the Indian Profile of Pune City Retail sector Summary Page 65 “To study the Impact of Retail Malls on Grocery Shops with special Ph.D. reference to select FMCG Products in Nashik and Pune Cities” Thesis 2018 CHAPTER III: Recent Trends in Retail Sector 3.1 Introduction Retail is the final stage of any economic activity. By virtue of this fact, retail occupies an important place in the world economy. There is no doubt that retail is becoming more vibrant and diverse globally and its turnover accounts to US $ 6.6 trillion1. Retail occupies an important place in the world economy as it is the final stage of any economic activity. In an attempt to understand the scope of the term “retail” various definitions of the term have been examined. According to Phillip Kotler, “Retailing includes all activities involved in the selling of goods or services to the final consumers for personal non business use”2. Any organization selling to final customers, whether it is a manufacture, wholesaler and retailer is doing retailing. It does not matter how the goods or services are sold (i.e. by person, mail, telephone, vending machine or internet or where they are sold in a store, on the street or in the consumer’s home) (Monarch Joshi, 2014)3. 3.2 Retail Industry: Global Scenario The retail sector has played a phenomenal role throughout the world in increasing productivity of consumer goods and service. It is also the second largest industry in the US in terms of numbers of employees and establishments. It could not be denied that, most of the developed economies are very much relying on their retail sector as a locomotive of growth. Worldwide, the retail industry is one of the most attracting industries being controlled by a handful of powerful corporations based mainly in the U.S and Europe, namely, Wal-Mart, Tesco, Carrefour and Metro4. Beside these, there are many other MNC retailers, who have their business saturated in their home countries, are looking for penetrating emerging markets like India, China and Russia. As these MNC retailers provide a world class shopping experience for the consumers, today's consumers are becoming more demanding in terms of world class products as well as experiential shopping. Thus the shift in consumer behaviour in these Page 66 “To study the Impact of Retail Malls on Grocery Shops with special Ph.D. reference to select FMCG Products in Nashik and Pune Cities” Thesis 2018 emerging markets attracts world largest and the best players. The saturation in the US retail market and other existing markets in developed countries are forcing them to move into new markets like India and China. Retail has played a major role world over, in increasing their activity across a wide range of consumer goods and services. The impact can be seen in countries like U.S.A., U.K., Mexico, Thailand and more recently China. The economies of countries like Singapore, Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector. 3.2.1 Phases of Growth in Retail Markets Alike other industries, retail sector too pass through a life cycle and distinct phases of growth as observed in many economies. The development of organized retail sector started in the western markets much before they did in the rest of the world. These markets are characterized by the existence of definite formats. Usually retailers don't only have a national presence, but many a times, an international presence5. The following data shows the markets of the world and the status of stages of growth. Inception (10 years) Characteristics Evolving diffused formats Regional presence Conjectural presence in each market Lower market share per market Lack of availability of retail real estate High degree of competition from space at reasonable cost unorganized players Investment stage with high Mainly promoter and angel incremental investments investor financing Presence in few merchandise Lack of scientific merchandise categories planning process High bargaining power of vendors High logistics and merchandise High degree of resistance from acquisition costs consumers towards organized formats Risk Availability of finance Low fixed cost coverage leading High individual property risk to high operational leverage Page 67 “To study the Impact of Retail Malls on Grocery Shops with special Ph.D. reference to select FMCG Products in Nashik and Pune Cities” Thesis 2018 Market risk in terms of acceptability Format risk due to stability of format by customers Example: African Markets Growth (15-25 years) Characteristics Established format characteristics Development of specialty formats Movement towards national Rapid expansion phase presence Growth in internal and external Availability of retail space at competition reasonable costs Accelerated investments in new Larger penetration into individual projects with lower incremental markets investments Private equity, venture capital, Introduction of scientific debt and equity market financing merchandise planning process accessible Bargaining power with vendor Increase in breadth and depth increases of merchandise categories Consumers start accepting new formats. Risk Highly geared financial structure Private label investment IT integration Example: Indian Markets Maturity (5-10 years) Characteristics Increasing specialization in National and international presence formats Oversupply of retail space New store expansion tapers Increasing focus on differentiation Significant competition from strategies other organized players and Market share stagnates overlapping formats Low incremental investments required Page 68 “To study the Impact of Retail Malls on Grocery Shops with special Ph.D. reference to select FMCG Products in Nashik and Pune Cities” Thesis 2018 Peak penetration into individual Cost of financing declines markets Customer acquisition cost increases Investment funded through Private labels assume strategic internal accruals significance for improving Substantially large breadth and profitability depth of merchandise categories Increasing collaboration with Vendors enjoy low bargaining vendors to derive supply chain power efficiencies Consumers demand higher service levels as awareness increases Risk Market risk due to increase in Consumer retention risk competition Example: South Asian Markets Stagnation (5-10 years) Characteristics Consolidation of formats New store National and international presence expansion stagnates or falls Retail supply space tappers, leading Over penetration into individual to higher acquisition costs/ lease markets rentals High cost of financing Dependence to external finance to Consolidation of merchandise fund investment increases categories Customer retention cost increases Low bargaining power of vendors- Revamp in private label strategy vendors start losing out as Consumers demand higher service competitive pressures lead to levels as awareness increases squeezing of vendors Market share of individual players Consumers shift to alternate decline formats Page 69 “To study the Impact of Retail Malls on Grocery Shops with special Ph.D. reference to select FMCG Products in Nashik and Pune Cities” Thesis 2018 Risk Business risk increases and payback Increasing finance risk periods from new projects increases Competition from alternative New project risks in international formats markets Consumer retention risks Example: Developed Markets 3.2.2 Current Trends in Global Retail Sector Turner & Townsend (2014)6, puts forth the region wise, current trends in the global retail sector which can be outlined as follows: North America: In revenue terms, North America is the leading region in the global retail industry, with a 37 percent share of the largest 250 retailers. Generally, the sector has grown over the last few years, showing a direct link to economic recovery and a return to retailer expansion. There has been increased activity in Canada recently, driven by US brands such as Saks, Target and Nordstrom establishing bases there. Though around 90 percent of sales are currently made in store, technology is playing a greater supporting role. Retailers are creating digitally enhanced spaces to showcase their products and providing more information through hand-held technology both pre and post-sale. Latin America: There has been sustained economic growth between two and seven percent across Latin America in recent years, driven primarily by rising prosperity in the middle classes. Higher disposable incomes in the upper middle class and the lack of a culture of saving implies that spending is beating inflation. The growing lower middle class has a growing demand for automotive, household goods and clothing’s. Young, fashion-conscious consumers dominate, with strong brand awareness and an appetite for the latest high tech products. Brazil is the strongest retail market, with numerous new shopping