Organised Retail in India-Mba Economics Paper

Retailing-An Introduction

The word "Retail" originates from a French-Italian word "retailler" meaning someone who cuts off or shreds a small piece from something . Retailing includes activities of marketing and selling products or services to end consumers for their own household or personal use. Retailer is a Person or Agent or Company or Organization who is instrumental in reaching the Goods or Merchandise or Services to the End User or Ultimate Consumer.

Kinds of Retailing

Unorganised

Traditional or Unorganized retail outlets are normally street markets, counter stores, kiosks and vendors, where the ownership and management rest with one person only. This sector accounts for two thirds of the market and requires low skilled labor. These are highly competitive outlets, with negligible rental costs (unregistered kiosks or traditional property), cheap workers (work is shared by members of family) and low taxes and overheads.

Organised Retailing

Organized retailing comprises mainly of modern retailing with busy shopping malls, multi storied malls and huge complexes that offer a large variety of products in terms of quality, value for money and makes shopping a memorable experience.

Retailing Scenario in India

Most of the retail sector in India is unorganised, which were known as mom-pop stores. The biggest advantage in this sector is the consumer familiarity that passes on from one generation to the next. The transformation stage of the retail sector started in late 1990's. The emergence of pure retailer has started at this stage as it is been perceived as a beginner and the organised retailing is getting more attractive. In India, the retail business contributes around 11 percent of GDP in 2005 . Of this, the organized retail sector accounts only for about 3 percent share, and the remaining share is contributed by the unorganized sector. The main challenge facing the organized sector is the competition from unorganized sector.

Transformation of the Retail Scenario in India

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As Indian retailing is witnessing rapid transformation in different areas of business by using ascendable and gainful retail models across different categories, consumers started accepting the modern retail irresistibly. The unorganised market is making its way for modern retail formats such as malls, provision stores, hypermarkets, discount stores etc. Most of the malls started expanding from metros to tier 2 cities as part of the expansion plans. Consumers are more attracted to these because of the shopping experience they provide and extra facilities like food court, entertainment which is set under one roof.

Demand and Supply Factors

Economic growth:

Economic growth is one of the major demand factors of Retail sector in India. Rapid economic growth has resulted in greater disposable incomes for the booming Indian middle class. Disposable incomes are expected to rise at an average of 8.5% p.a. till 2015 . Higher numbers of working women have also increased both consumption and purchasing power. Real GDP grew at an annual rate of 9.4% in the fiscal year 2006 (ending March 2007), the fastest expansion for 18 years .

Real GDP growth and annual household disposable income (at constant 2001 prices): 2001-2006

Source: Euromonitor International from IMF and national statistics

Demographics:

A tidal wave of young adults are entering India's consumer society with rising aspirations, new lifestyle requirements and an insatiable demand for consumer brands. A large number of young working populations between the age of 24 and 35 are also a major factor.

Urbanisation:

Urban areas are the engines of productivity and growth in the country. Urbanisation is associated with higher incomes, improved health, higher literacy, improved quality of life and other benefits. The Indian urban population is projected to increase from 28% to 40% of the total population by 2020 and incomes are simultaneously expected to grow in these segment .

Media Explosion:

TV, Internet, radio & Press have the power to influence the population when it comes to promotion. Compared to previous years the presence of media has become more important. Our televisions have over 200 channels--international, national, regional and local. And the print media is still strong in this area. The radio is opening up and growing by the day.

Infrastructure Development:

Real Estate development, ownership of private transport, banking/credit are other factors which comes in the demand side. The real estate story in India is growing bigger by the day. Industry experts believe that Indian real estate has huge demand potential in almost every sector -- especially commercial, residential and retail. Organised retail is expected to create a demand for around 220 million square feet of retail space by 2010 . Ownership of private transport gives accessibility. Credit facility is also playing a major role as the availability of it is more liberalized and the rates of interest are in an affordable position.

Competition:

As the market is a mix of organised and unorganised players, it is obvious that there will be a competition from the unorganised and the future stores.

Pricing:

Pricing will be a crucial variable due to its direct relationship with a firm's goal and its interaction with other retailing elements. The importance of pricing decisions is growing because today's customers are looking for good value when they buy merchandise and services. Price is the easiest and quickest variable to change.

Scale of Operations:

Scale of operations includes all the supply chain activities, which are carried out in the business. It is one of the challenges that the Indian retailers are facing. The cost of business operations is very high in India.

The Human resource factor:

As this sector has only recently emerged from its nascent phase, sourcing