RETAILING in INDIA: ANEMERGING PROSPECTS and CHALLENGES Dr

ISSN: 2249-7196 IJMRR/August 2016/ Volume 6/Issue 8/Article No-9/1070-1078 Dr. Pankaj Kumar / International Journal of Management Research & Review

RETAILING IN INDIA: ANEMERGING PROSPECTS AND CHALLENGES Dr. Pankaj Kumar*1 1Asst. Prof, Dept. of Management Studies, Deenbandhu Chhotu Ram University of Science & Technology, Murthal, Sonipat (Haryana), India. ABSTRACT The Indian economy was opened through economic reforms in the 1991 and since then, the country has seen growing size of markets including capital and commodity market, the emergence of new industries with global competitiveness, entry of global corporate, institutional reforms, reforms through policies and corporate governance. Furthermore an evolution in consumer shopping habits has increased the confidence of domestic as well as foreign investors in developing India. The aim of this paper is to give an impression about the present scenario, prospectus and the different obstacles in the growth of retail sector in India. The growth of retail sector is driven by higher disposable income of middle-class consumers due to employment in multinational corporations, increasing number of working women, easier consumer credit with low interest rates, high brand consciousness, rising internet penetration, aggressive marketing by companies and change in consumption pattern with high aspiration levels allowing them to spend more on new products, brands, and their patronizing behaviour. Alongside problems of land acquision, prices of real estate and rentals, high cost of infrastructure, online retailing, and employable skills are the constraints in the growth of organised retail in India. But the increase in the number of retail chains across the country is an indication that organized retailing is emerging as an industry and will boom in a big way in the near future and likely to evolve as a largest market of world. Keywords: Retailing, Reforms, Multinational Retailers, Infrastructure, India. INTRODUCTION The Indian economy was opened through economic reforms in the 1991 and since then, the country has seen growing size of markets including capital and commodity market, the emergence of new industries with global competitiveness, entry of global corporate, institutional reforms, reforms through policies and corporate governance, furthermore an evolution in consumer shopping habits have increased the confidence of domestic as well as foreign investors in developing India. Now Indian economy is growing faster than the economy of other developing countries in the world including China. Indian economy stands as one of the few major emerging markets which have not suffered the consequences of declining in commodity prices and rising in US dollar. Worldwide declining in oil prices has reduced fiscal deficit and inflation, thereby increasing consumer spending power has given positive impact on the growth of Indian economy. ‘Make in India’ initiative launched by government of India with an aim to ensure an increase share of manufacturing sector 16

*Corresponding Author www.ijmrr.com 1070

Dr. Pankaj Kumar / International Journal of Management Research & Review

percent to 25 percent in Gross Domestic Product (GDP) of India by 2022 with sustainable growth of manufacturing sector is targeted 12 to 14 percent per annum over the medium term and generation of 100 million additional jobs by 2022 in manufacturing sector through global recognition to Indian economy for attract investment from businesses around the world and build India as global manufacturing hub also playing a vital role for boost up Indian economy with retail sector. Especially textiles & garments, leather & footwear, food processing, pharmaceuticals, construction and IT hardware & electronics sectors those included as focuses sector in ‘Make in India’ initiative will help to boost the growth of retail sector in coming years. Indian retail sector has received the global attention from the last few years and is on the verge of a big revolution after the uprising in information technology sector and placed among the top fiveretail markets (PwC research, 2014). Liberalisation policies in retail sector have made India an attractive destination for multinational retailers (Srivastava, 2008).Continuous changes on account of reforms including foreign direct investment in Indian retail sector and consumers’ habits and preferences have been observed in the dynamic Indian retail industry. Multinational retailers preferring Indian market and manufacturers are identifying, redefining, or evolving new retail formats with a large market potential for a range of categories is indicated by low organised retail penetration, increasing urbanization, growing incomes, increasing consumer confidence, etc. (PwC research, 2014).In the year 2013, the Indian retail sector was estimated at USD520 billion with largest employees in the country and by 2018, the sector is likely to grow at a compound annual growth rate (CAGR) of 13 per cent to reach a size of USD950 billion (PwC research, 2014). Organised retail includes large scale with modern format of retailing. Large scale means scale of operation of retail businesses as chain of stores (Retailers Association of India, 2014), while Modern format views as self-service with modern store management practices. The emergence of organised retail in India has been the development of traditional retail format to self-service at medium and large retail formats. Manufacturers-Retailers- Consumers are three major stakeholders in organised retail and desired to cover capitalization on emerging business opportunities, providing better quality at reasonable prices, better service with the aim to increase footfall in different retail formats. Organized retailing has become more popular in metropolitan and big cities due to the increase in multinational corporations & IT sector and plenty of business opportunities which all helped to increase disposable income consumers. The organised retailing covers malls, supermarkets, hypermarkets, discounts stores, category killer and professionally managed which offer variety products and services and under one roof. A number of large corporate houses have already made their foray into this arena, ranging from beauty and health stores, supermarkets, self-service music stores, to new age book stores, everyday low price stores, electronics items stores, computers and peripherals stores, office equipment stores and home/building construction stores, moreover these retail stores are not run by family members and operate on self-service model (Sengupta, 2008; Ramkrishnan, 2010). Some of the big players in the Indian retail sector have been identified by author from various secondary sources which includes Bharti Retail Limited, Aditya Birla Retail Limited, Reliance Retail Limited, Future Group (India) Limited, Infinity Retail Limited, Vishal Retail

Limited, Spencer's Retail Limited, Tata Group, Piramyd Retail Limited, K Raheja Group. Furthermore the entry of global players like Wal-Mart, Metro, Carrefour and etc. will push the growth of the retail sector. The brands of big players include Pantaloons, Big Bazaar, Food Bazaar, Central, Home Town, Fashion Station, e-Zone, Planet Sports, Ethnicity, Spencer's, Spencer's Hyper, Music World, Westside, Fashion Yatra, Landmark, Star India Bazaar, Shoppers Stop, Lifestyle, Reliance Mart, Reliance Value, Reliance Select, Reliance Trendz, Reliance Jewels, Reliance Digital, Reliance Wellness, Health and Glow in retail sector. However, a major market share of Indian retailing is dominated by large unorganised retail which includes the small size family-owned stores (Halepete et al., 2008; Ramkrishnan, 2010). The retailers of unorganised sector offer products at convenient and economical prices to the local consumers (Halepete et al., 2008; Srivastava, 2008; Sathish and Raju, 2010; Ramkrishnan, 2010).Internationally, while some studies suggest that large scale retailers like Wal-Mart are responsible for widespread closings of mom-and-pop stores (Wal-Mart Watch, 2005; Basker, 2005) and question whether cost to communities in terms of labor displacements and higher poverty is offset against benefits of lower prices and greater convenience (Goetz and Swaminathan, 2006), other studies suggest that the process of creative destruction unleashed by Wal-Mart has had no statistically significant long-run impact on the overall size and profitability of the small business sector in the USA (Sobel and Dean, 2006). GLOBALISED SCENARIO OF RETAIL SECTOR The world economy has faced challenges in the past from the sub-prime crisis from 2009 to political crunch in some oil supplier countries, slowdown in China and Japan and more recently exit of Britain from European Union will also affect the scenario of globalised retail. On other side there were some positive indicators such as recovery of Japan economy, increase in GDP rate of India, rise in the employment data in U.S and their real income, indication of improvement in credit market conditions, continuous growth in consumer spending will boost the growth of retail sector worldwide and especially in emerging markets like Brazil, Russia, India, china and south Africa (BRICS Nation) and also among the promising markets of Colombia, Mexico, Philippines, Turkey and much more sub Saharan Africa also supports the projections. These countries and regions will gain and improve governance, competitive industries and favorable demographics and are expected to experience strong growth in coming decade, thus creating significant new opportunities for world’s leading retailers. Deloitte’s 19th annual global power of retailing report 2016 shows the snapshot of global scenario of top 250 retailers of world economy. The world-wide aggregate retail revenue through sales of top 250 companies are valued nearly at USD 4.8 trillion in fiscal year 2014 with compound annual growth rate in retail revenue is 4.9 percent ( fiscal year 2009-2014). The top 250 retailers operate 66 percent operations in average number of 10.4 foreign countries and generate 23.4 percent of retail revenue from foreign operations. The retailers earned 4.3 percent of composite return on assets and composite net profit margin 2.8 percent on sales. The growth of retail revenue fell to a five-year low for European retailers in 2014 as 30 percent of the region’s Top 250 retailers(28 companies) experienced negative sales

growth and anotherthird saw their rate of growth decline but remain positive.Sales fell for half of the UK retailers in 2014, with nearly another third witnessing slower growth. Profits fell along with sales; the group posted a composite net profit margin of -2.2 percent. In the above report CAGR of Amazon.com, Inc. is highest among all, so it shows that on line retailing will give a stiff competition to store retailers through low prices of products and cash on delivery model. Table 1: Growth Scenario of Top Twenty Global Retailers (Fiscal Year-2014)

Retail Rank as Retail Retail Net No. of Name of Dominant Revenue Per Name of Revenue # Income # Countries Country Operational CAGR## Retail Company (US$ (US$ of Origin Format (FY 2009- Revenue Millions) Millions) Operation 2014) Hypermarket/ Wal-Mart 01 U.S. Supercenter/ 485,651 17099 28 3.5% Stores, Inc. Superstore Costco Cash & Carry / 02 Wholesale U.S. Warehouse 112640 2,088 10 9.5% Corporation Club The Kroger 03 U.S. Supermarket 108,465 1,747 01 7.2% Co. Schwarz Unternehmens 04 Germany Discount Store 102694 e n/a 26 7.7% Treuhand KG Hypermarket/ 05 Tesco PLC U.K. Supercenter/ 99,713 -9,385 13 1.8% Superstore Hypermarket/ Carrefour 06 France Supercenter/ 98,497 1,817 34 -2.8% S.A Superstore Aldi Einkauf 07 GmbH & Germany Discount Store 86,470 e n/a 17 6.8% Co. oHG Cash & Carry/ 08 Metro AG Germany Warehouse 85570 247 32 -0.8% Club The Home Home 09 U.S. 83,176 6,345 04 4.7% Depot, Inc. Improvement Walgreen Co. (now Drug Walgreens 10 U.S. Store/Pharmac 76,392 2,031 02 3.8% Boots y Alliance Inc.) Discount Target 2.7% 11 U.S. Department 72,618 -1,636 01 Corporation Store Amazon.co 25.8% 12 U.S. Non-Store 70,080 -241 14 m, Inc. Hypermarket/ Groupe 13 France Supercenter/ 69,622 1046 13 6.2% Auchan SA Superstore CVS Health Drug Store/ 14 U.S. 67,798 4,644 03 4.1% Corporation Pharmacy Casino Hypermarket/ 15 France 64,462 * 1,095 29 13.1% Guichard- Supercenter/

Perrachon Superstore S.A. Hypermarket/ Aeon Co., 16 Japan Supercenter/ 61,436 738 11 7.6% Ltd. Superstore Edeka 17 Germany Supermarket 60,960 * n/a 01 2.9% Group Low’s Home 3.6% 18 Companies US 56,223 2,698 4 Improvement Inc. Seven & i Hypermarket/ 19 Holding Co., Japan Supercenter/ 53,839 * 1,698 18 3.4% Ltd Superstore Rewe 20 Germany Supermarket 51,168 * 419 11 2.4% Combine Source: 19th Annual Global power of retailing report 2016 by Deloitte Touche Tohmatsu Limited (DTTL) for fiscal year 2014. # = Revenue and Net Income may include Result from Non Retail Operation; ## = Compound Annual Growth Rate; * = Revenue includes wholesale and retail sale; n/a = not available, e = estimate PROSPECTS OF GROWTH With an estimated population of 1.31 billion, India is the world's second most populous country after the People's Republic of China and represents almost 17.31 per cent of the world's population, which means one out of six people on this planet lives in India. AT Kearney a U.S based global management consulting firm has ranked india as the fourth most attractive nation for retail investment among 30 flourishing markets in the world. Multiple factors responsible were favorable demography with more than 50 per cent of India's current population is below the age of 25 and over 65 per cent below the age of 35, so young segment will increase retailing. About 72.2 per cent of the population lives in some 638,000 villages and the rest 27.8 per cent in about 5,480 towns and urban agglomerations (India's Population, 2016). Moreover, higher disposable income of middle-class consumers due to employment in Multinational Corporations, increasing number of working women, easier consumer credit with low interest rates, high brand consciousness, rising internet penetration, aggressive marketing by companies and change in consumption pattern with high aspiration levels allowing them to spend more on new products, brands, and their patronizing behaviour. India as a developing economy, availability of resources, ease access to credit, rapid real estate infrastructural development, political stability, and safe environment for investment is the growing key drivers of retail sector. The government of India has started to build 100 Smart Cities in response to booming urban population. Population growth and rapid urban migration are creating huge challenges for cities in India. As result of above decision we can imagine that how big potential will be there in the future of retail sector growth. The development of 100 Smart Cities comes about as one of the significant initiative to tackle this demand through retail sector reforms and growth. This means that Indian retail sector has enough potential for growth and will boom in a great way in coming period. Almost every major Indian business house are either getting into the retail space or are consolidating and expanding their presence in the retail space at a

feverish speed. More recently Patanjali Ayurved ltd. has also introduced their products through Big Bazaar retail store and opened Patanjali store in metropolitan and big cities. So it may easily observed that how the share of organised is increasing day by day. Research and consulting firm, Great Place to Work Institute and Retailers Association of India (RAI) conducted survey to recognize India's top 10 best retail companies to Work for in 2014. The companies were considered on the basis of five dimensions: Credibility, Respect and Fairness, Pride and Camaraderie, by executing practices across areas such as inspiring, speaking, listening, developing, caring, thanking, hiring, celebrating and sharing, an organization can create and maintain a good workplace environment and as a result of research top 10 companies are includes Lifestyle international Pvt. Ltd. followed by Titan company limited, Shoppers stop limited, United Colors of Benetton India, Future retail, Metro cash & carry India Pvt. Ltd., Marks and Spencer India Pvt. Ltd., Puma sports India Pvt. Ltd., Jubilant Food works Ltd. and Levi Strauss (India) Pvt. Ltd. Household groceries & food, apparel & footwear and electronics are seems to be most encouraging segment of organised retail, because this is well-recognized fact that life in metropolitan and big cities in India is becoming more and more difficult, reason being time wise consumers are getting poor and money wise becoming rich, so disposable income is reported to be on the rise and disposable time is on the decline. Major changes are happening across the country in the terms of consumer’s taste and preferences. The wet market which has biggest share in retail market as unorganised market for grocery and food retail is dropping its popularity and share. On the other hand consumer’s spending at organised retail formats increasing day by day due to availability and variety of brands, product assortment, shopping atmosphere, sales personnel responsiveness, reasonable pricing, in-store convenience, various schemes & promotions and many more attributes. Today consumer’s buying more during their visits at retail stores at little spending of time. It’s a huge reflection of increasing purchasing power and busy lifestyle. Daily grocery items are no longer seems to be available in wet market in many parts of country. Consumers like to touch and feel the product before purchasing, so it’s a major driver of evolving self-service format of retail. One consumer may represent different shopper at different point of time. Sometime consumer is time starving and need to shop and checkout quickly. On other hand it may possible that on different day consumer has time for shopping and entertainment also. Sometime consumer comes for weekly for whole month grocery shopping, apparel & footwear shopping and for different household items, so even with the same target segment we have different segments of shoppers. In additions to above the emerging of malls has transformed the retail environment in India. A significant number of multiplexes have been developed in malls along with the facilities of Food courts, cafeteria, bar & dance floor, Spa, gymnasium & aerobics, parlours & salons, video games, books stores, automobile dealers and many more. So it is not incorrect to say that malls providing various things for every segment of consumers. CHALLENGES With a high potential in retail sector in India, Key challenges are also required to discuss which are being faced by retailers recently and will be faced in near future. There have been

major constraints in terms of land acquisition at local level basically in developing states for transportation, logistic parks, residential & commercial space and real estate prices & rentals are high in cities. International competitiveness of our manufacturing is adversely affected by the high cost of infrastructure including power, renewable energy, transportation, ports, telecommunications, innovation, and delay in getting regularity clearances lead to increase cost of retailing. Lack of transport and storage logistics often leading to huge wastage of time, efforts and material, but now the present central government has started to give focus on roads and highways projects and restarted them, which is required for an efficient movement of logistics for manufacturing and retail industry across the country. Government is trying to focus on generation of capacity addition to build up infrastructural projects and several steps has been taken by road transport, highways and shipping ministry to increase the speediness of construction of infrastructural projects. Physically linkage of every corner of country to domestic and international market through roads, ports, railway and airports will boost the manufacturing and retail sector growth. Secondly online shopping is going to be a big contest for offline store retailers day by day, basically cash on delivery (COD) mode of payment at low prices, because Indian consumers are very sensitive about prices of products, moreover easy exchange or return policy, quick & timely delivery of products at doorstep, product and price comparison options on websites of e-retailers are the reasons of growth in consumer base. As the growth of e-retailing in last three years is concern, India ranked as first with 68 percent growth followed by China 23 per cent, United states of America 19 per cent and global average of growth 16 per cent. As per the share of e- commerce market players in India is concern Flipkart including Myntra has 45 per cent market share followed by Snapdeal 26 per cent, Amazon India 12 per cent and Paytm 7 per cent. The highest growth rate has observed in apparel & accessories segment almost 69.50 per cent over last year, followed by electronic items segment by 62 percent, baby care products segment at 53 per cent, beauty & personal care products at 52 per cent and home & furnishings at 49 per cent (ASSOCHAM report, 2015). With the known price sensitive Indian consumers, the retailers have to manage with thin margins in order to compete for the share of wallet of the grocery consumer. Consumer spends around 50 per cent on food and margins on food retail is nearly 12-15 per cent reducing to 2 per cent post-tax (Vijayraghavan, 2007). The entry of massive grocery format of Reliance and the Bharti-Wal-Mart venture shall further kick up competition in the business and put pressure on margins (Daftari, 2007).The retail industry growth has also face a robust competition from the millions of mom-and-pop stores, which are easily accessible and approachable and provide services like free home delivery and goods at credit, which is not possible with organised retail formats. PwC’s research and other reports suggest that the 12 million mom-and-pop stores comprising India’s unorganized market can co-exist with modern trade players. Besides this training and retaining talent is the major concern in retail industry, various surveys have been conducted on employability and results states that gap between skills of graduates and market needs is huge. As per Higher Education in India: Vision 2030, a report produced by international consultants Ernst and Young for the Federation of Indian Chambers of Commerce and Industry (FICCI) reported that 75 percent of IT graduates, 55 percent of health care, 55

percent of manufacturing and per cent of Banking and Insurance graduates are deemed unemployable. Productivity of man power and growth of their incomes is adversely affected by the low levels of education, skills and health. Recently caste reservation issue arise in Haryana and unrest took place at National Capital Region (NCR), these types of activities create negative environment for investments. Implementation of Goods and Service Tax (GST) is pending from long duration; earliest execution of GST will reduce state border taxes and will create growth in retail sector. The government should also give more focus on new start-up and development of small and medium-sized enterprises, which could play a big role as key riders’ for retail sector, because out of the first USD 100 billion investment 50 per cent should be utilised for back-end infrastructure as per the conditions imposed for foreign direct investment in multi-brand retail in India. Government is trying to create investor friendly environment for ease of doing business in India but still there is lot of need to do hard-work on ground reality level. Retailing like any product does follow a life cycle. India is currently at a stage where customers need variety in products and retail formats. India as a developing country, strong consumer base and demand potential are the key drivers of world’s fifth-largest consumer market. Domestic as well as global retailers looking Indian economy as whole for their business with issues related to regulatory and operating environment. The revolution is driven by large expectations where both domestic and international players are the channel through which other large stores in India are spreading themselves across the country. The increase in the number of retail chains across the country is an indication that organized retailing is emerging as an industry and will boom in a big way in the near future and likely to evolve as a largest market of world. REFERENCES [1] Basker E. Job creation or destruction? Labor-market effects if Wal-Mart expansion. The Review of Economics and Statistics 2005; 87: 174-83. [2] Daftari I. Reliance Fresh may add groceries to product mix. The Economic Times, 3 May, 2007; 4. [3] Goetz SJ, Swaminathan H. Wal-Mart and country-wide poverty. Social Science Quarterly 2006; 8(2): 211-26. [4] Halepete J, Iyer KVS, Park SC. Wal-Mart in India: success or failure? International Journal of Retail and Distribution Management 2008; 36(9): 701-13. [5] Mishra A.Growing mismatch between graduate skills, market needs, 2014. [6] http://www.universityworldnews.com/article.php?story= 20140204171742828Retrieved on 05/02/2016. [7] Ramkrishnan K. The competitive response of small, independent retailers to organized retail: study in an emerging economy. Journal of Retailing and Consumer Services 2010; 17: 251-8. [8] Sathish D, Raju VD. The growth of Indian retail industry. Advances in Management 2010; 3(7): 15-19.

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