/ PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
INTERNAL ASSESSMENT TEST – 1
Date:19/09/2017Max Marks:40 Marks
Subject & Code:Retail Management (16MBAMM302)Section:Retail Management
Name of faculty:Sanjay Kumar Upadhyaya Time:8:30 – 10:00AM
Note: Answer all questions
1(a) / What is retailing? / (2 marks)(b) / Give an overview of the retail industry in India / (6 marks)
(c) / What to you understand from FDI in retail in India? Explain with as many examples you can and the names of new entrants in the retail space / (8 marks)
2(a) / How does Walmart contribute and detract from the communities it operates in / (2 marks)
(b) / What are the types of Retailers? Describe them in detail. What are the top 3 sectors in Modern Retail in current times and what change is expected in the same in the next 5 years / (6 marks)
(c) / Describe Retail Market in India using examples to elaborate key features. What are the key drivers and what bottlenecks you feel the industry is facing currently. / (8 marks)
3 / Case Study
The Mothercare group is a leading UK and international retailer. Mothercare specializes in products for mothers to be, babies and children up to 8 yrs. including maternity and children clothing, furniture and home furnishings, toys, bedding, feeding , bathing and travel equipment, marketed both in-store and online.
The Challenge: Mothercare ‘s UK business has been hit by a combination of external economic factors, weaker footfall through the store and increasingly tight margins, leading the retailer to embark on a major turnaround action plan. The Management was aware of store productivity, including the way in which staff was deployed, staff tasking and shop floor management linked to sales performance. Customer conversion rates were falling and in some stores as many as 50% of the customers left the store without buying anything. There was a risk that Mothercare would be forced to resort to reducing the staff numbers to manage the bottom lines. Please come out with a solution to meet the challenge posed on Mothercare UK. / (8 marks)
Answers:
1(a) Retailing is the set of business activities that adds value to the products and services sold to the consumers for their personal or family use. Retail comes from the French word ‘Retaillier’ which means to break bulk.The distribution of consumer products begins with the producer and ends with the ultimate consumer. In between this are many middlemen some of which are termed as retailers. Retailing is defined as a conclusive set of activities or steps used to sell a product or a service to consumers for their personal or family use. A retailer is a person, agent, agency, company, or organisation which is instrumental in reaching the goods, merchandise or services to the ultimate consumer.
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1(b)we observe aRising Prominence of Online Retail
Online retail business is the next generation format which has high potential for growth in the near future.
After conquering physical stores, retailers are now foraying into the domain of e-retailing
E-commerce is expected to be the next major area supporting retail growth in India.
The industry is projected to touch US$ 100 billion by 2020 growing from US$ 30 billion in 2016
With growth in the e-commerce industry, online retail is estimated to reach US$ 70 billion by 2020 from the recorded value of US$ 3 billion in 2014
India’s total potential of Business to Consumer (B2C) is estimated to be US$ 26 billion, of which $3 billion can be achieved in the next three years from 16 product categories, according to a study by Federation of Indian Chambers of Commerce and Industry (FICCI)and Indian Institute of Foreign Trade (IIFT).
India has replaced China as the most promising markets for retail expansion, supported by expanding economy, coupled with booming consumption rates, urbanizing population and growing middle class.
India is expected to become the world’s fastest growing e-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. Various agencies have high expectations about growth of Indian e-commerce markets. Indian e-commerce sales are expected to reach US$ 120 billion! By 2020 from US$ 30 billion in FY2016.Further, India's e-commerce market is expected to reach US$ 220 billion in terms of gross merchandise value (GMV) and 530 million shoppers by 2025, led by faster speeds on reliable telecom networks, faster adoption of online services and better variety as well as convenience. India’s direct selling industry is expected to reach a size of Rs 23,654 crore (US$ 3.54 billion) by FY2019-20, as per a joint report by India Direct Selling Association (IDSA) and PHD.
Indian exports of locally made retail and lifestyle products grew at a CAGR of 10 per cent from 2013 to 2016.
The size of modern retail in India is expected to double to Rs 171,800 crore (US$ 25.7 billion) from Rs.87, 100 crore (US$ 13 billion) in three years driven by Omni-channel retail.
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1c . The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totalling US$ 935.74 million during April 2000–December 2016, according to the Department of Industrial Policies and Promotion (DIPP).
With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies have invested in the Indian retail space in the past few months.
IKEA, the Netherlands-based furniture company, has purchased 14 acres of land in Bengaluru for setting up its third retail outlet in the country.
Future Group, a consumer goods company in India has entered into a joint venture with KhimjiRamdas Group in UAE for selling garments in Oman with both the companies having invested US$ 11.7 million each. The joint venture will first launch four to five stores in Oman and gradually increase the count to 17 to 18.
Amazon India plans to double its storage capacity in India by adding 14 new warehouses by June 2017, aimed at maintaining rapid growth in sales and catering to the remote parts of India.
Bang and Olufsen, Danish stereo and speaker system maker, has plans of setting up about eight to ten standalone satellite stores by the end of FY 2017-18 in cities like Kolkata, Hyderabad, Ahmedabad, among others.
Walmart, global retail giant, plans to open 50 new cash-and-carry stores in India over the next three to four years and locate half of the stores in Uttar Pradesh and Uttarakhand while creating over 40,000 jobs in the two states.
Global e-commerce giant, Amazon is planning to enter the Indian food retailing sector by investing US$ 515 million in the next five years, as per Minister of Food Processing Industries, and Government of India.US apparel retail major Gap Inc, has tied up with Arvind Group’s fashion portal NNNow.com to sell its products online, which will help the retailer expand its presence beyond metros and tier-I cities.
Hamleys, has stated that India is one of the most important markets for Hamleys globally, and outlined plans of opening six more stores, taking its total store count in the country to 32 by the end of March 2017.
Roche Bobois Group, outlined plans of opening new stores in cities like Hyderabad, Chennai, Pune, Kolkata and Ahmedabad, in order to make India one of its top five markets by 2022.
A joint venture between Dutch asset manager APG Asset Management and real estate asset platform Virtuous Retail, has acquired a portfolio of three shopping malls for US$ 300 million, and has committed an additional US$ 150 million as equity capital to expand the portfolio.
Future Consumer Ltd has formed a joint venture (JV) with UK’s largest wholesaler, Booker Group, with an investment of Rs 50 crore (US$ 7.5 million), to set up 60-70 cash-and-carry stores in India in the next 3-4 years.Adidas India Private Limited, outlined plans of opening around 30-40 big flagship stores across Delhi, Mumbai and Bengaluru, by 2020.
Mad Over Donuts (MoD), outlined plans of expanding its operations in India by opening nine new MOD stores in Hyderabad and Chennai by March 2017.
Switzerland’s luxury retail brand Bally, plans to re-enter the Indian market in a joint venture with Reliance Brands Ltd, by opening its first store in New Delhi in March 2017, and thereafter aiming to expand to four stores in Delhi, Mumbai, Kolkata and Chennai over the next 3 to 4 years.
Urban Ladder, an online furniture store, is in advanced talks to raise around US$ 25-30 million from existing investors Kalaari Capital, SAIF Partners and Sequoia Capital, along with one new investor, which will be used to fund its expansion plans.
Hennes & Mauritz (H&M), the Sweden-based clothing retailer, is in advanced talks with Mumbai-based Prakhhyat Infraprojects Pvt Ltd to lease around 275,000 square feet of space at Bhiwandi, Maharashtra, to set up its first warehousing hub in India.
Future Group has partnered with UK clothing and hardware retailer Laura Ashley to make and sell merchandise as well as wholesale distribution in India.
Parle Agro Pvt Ltd is launching Frooti Fizz, a succession of the original Mango Frooti, which will be retailed across 1.2 million outlets in the country as it targets increasing its annual revenue from Rs 2800 crore (US$ 0.42 billion) to Rs 5000 crore (US$ 0.75 billion) by 2018.
The Government of India may change the Foreign Direct Investment (FDI) rules in food processing, in a bid to permit e-commerce companies and foreign retailers to sell Made in India consumer products.
Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in online retail of goods and services through the automatic route, thereby providing clarity on the existing businesses of e-commerce companies operating in India.
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2(a) Walmart targeted demographic was modest income group and shoppers interested in prices.
Walmart has a large number of individual purchasers. It offers low prices as it buys big from large suppliers. Its customers look for low price but high quality items. Since it represents 25% share of the US Retail market it has huge bargaining power from suppliers. It keeps a fixed range of items instead of a huge variety and maintains the same retail structure within which adds on to consumer convenience.With this Walmart combines cost leadership and differentiation strategies. Its attractive prices and ease of location of items which ever store you walk in makes the store more and more popular with individual consumers. It could achieve this trough constant effort over year and never investment in making its stores look highly elegant.
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2(b) The Indian Retail sector has come off age and has gone through major transformation over the last decade with a noticeable shift towards organised retailing.
A T Kearney, a US Based global management consulting firm has ranked India as the fourth most attractive nation for retail investment among 30 flourishing markets.Theretail marketis around Rs. 47 lakh crore currently in 2016-17, while it is expected to expand at a CAGRof 15 per cent, according to the ‘Yes Bank - Assocham’ study.
The retail market, (including organised and unorganised retail), was at Rs. 23 lakh crore in 2011-12. According to the study, organised retail, that comprised just seven per cent of the overall retail market in 2011-12, has grown at a CAGR of 24 per cent and attain 10.2 per cent share of the total retail sector by 2016-17.In terms of sheer space, the organised retail supply in 2013 was about 4.7 million square feet (sqft). This showed a 78 per cent increase over the total mall supply of just 2.5 million sqft in 2012.
“Favourable demographics, increasing urbanisation, nuclear families, rising affluence amid consumers, growing preference for branded products and higher aspirations are other factors which will drive retail consumption in India,” said the Assocham Secretary General.
The major contributors to Indian Retail trade were as below in 1985
- Food and Beverages 59%
- Apparels6%
- Housing utilities15%
But in the year 2017 it has changed as below:
- Food and Beverage 34%
- Transportation 19%
- Housing utilities 12%
- Healthcare9%
In the next five years it is expected that the market will be driven by growth in communication spend, Education spend, Healthcare and Travel spend while the load on Food and beverage and utilities as a % will drop.
2©Retail classification:
Retail industry can be broadly classified into two categories namely-
Organised and unorganised retail.
Organized retail- Organised traders/retailers, who are licensed for trading activities and registered to pay taxes to the government.
Unorganized retail– It consists of unauthorized small shops - conventional Kirana shops, general stores, corner shops among various other small retail outlets - but remain as the radiating force of Indian retail industry.
Types of Retail outlets
Department Stores
A department store is a set-up which offers wide range of products to the end-users under one roof. In a department store, the consumers can get almost all the products they aspire to shop at one place only. Department stores provide a wide range of options to the consumers and thus fulfil all their shopping needs.
Merchandise:
Electronic Appliances
Apparels
Jewellery
Toiletries
Cosmetics
Footwear
Sportswear
Toys
Books
CDs, DVDs
Examples - Shoppers Stop, Pantaloon
Discount Stores
Discount stores also offer a huge range of products to the end-users but at a discounted rate. The discount stores generally offer a limited range and the quality in certain cases might be a little inferior as compared to the department stores.
Wal-Mart currently operates more than 1300 discount stores in United States. In India Vishal Mega Mart comes under discount store. We have examples like Metro, More etc. coming on board.
Merchandise:
Almost same as department store but at a cheaper price.
Supermarket
A retail store which generally sells food products and household items, properly placed and arranged in specific departments is called a supermarket. A supermarket is an advanced form of the small grocery stores and caters to the household needs of the consumer. The various food products (meat, vegetables, dairy products, juices etc.) are all properly displayed at their respective departments to catch the attention of the customers and for them to pick any merchandise depending on their choice and need.
Merchandise:
Bakery products
Cereals
Meat Products, Fish products
Breads
Medicines
Vegetables
Fruits
Soft drinks
Frozen Food
Canned Juices
Warehouse Stores
A retail format which sells limited stock in bulk at a discounted rate is called as warehouse store. Warehouse stores do not bother much about the interiors of the store and the products are not properly displayed.
Mom and Pop Store (also called Kirana Store in India)
Mom and Pop stores are the small stores run by individuals in the nearby locality to cater to daily needs of the consumers staying in the vicinity. They offer selected items and are not at all organized. The size of the store would not be very big and depends on the land available to the owner. They wouldn’t offer high-end products.
Merchandise:
Eggs
Bread
Stationery
Toys
Cigarettes
Cereals
Pulses
Medicines
Speciality Stores
As the name suggests, Speciality store would specialize in a particular product and would not sell anything else apart from the specific range.Speciality stores sell only selective items of one particular brand to the consumers and primarily focus on high customer satisfaction.
Example -You will find only Reebok merchandise at Reebok store and nothing else, thus making it a speciality store. You can never find Adidas shoes at a Reebok outlet.
Malls
Many retail stores operating at one place form a mall. A mall would consist of several retail outlets each selling their own merchandise but at a common platform. Examples are Central, Forum, Phoenix , Orion, UB City Mall, LuLu Hypermarket etc.
E Tailers
Now a days the customers have the option of shopping while sitting at their homes. They can place their order through internet, pay with the help of debit or credit cards and the products are delivered at their homes only. However, there are chances that the products ordered might not reach in the same condition as they were ordered. This kind of shopping is convenient for those who have a hectic schedule and are reluctant to go to retail outlets. In this kind of shopping; the transportation charges are borne by the consumer itself.
Example - EBAY, Rediff Shopping, Amazon
Market Dynamics:
In the past few years, Indian Retail sector has seen tremendous growth in the organised segment. Major domestic players have stepped into the retail arena with long term, ambitious plans to expand their business across verticals, cities and formats.
Companies like Tata, Reliance, Adani Enterprise and Bharti have been investing considerably in the booming Indian Retail market. Along with these giant retailers, a number of transnational brands have also entered into the market to set up retail chains in close association with bigger Indian companies.High consumer spending over the years by the reasonably young population (more than 31% of the country is below 14 years) and sharp rise in disposable income are driving the Indian organised retail sector’s growth. Even Tier I & Tier II cities and towns are witnessing a major shift in consumer preferences and lifestyles, the result of which, they have emerged as attractive markets for retailers to expand their presence.The Indian retail sector is highly fragmented and the unorganised sector has around 13 million retail outlets that account for around 95-96% of the total Indian retail industry. However, going forward, the organised sector’s growth potential is expected to increase due to globalisation, high economic growth, and improved lifestyle.