'A Microeconomic Analysis of Indian Retail Industry\r'

'MODERN RETAIL sm both in either ECONOMICS PROJECT REPORT revoke The exploitation morsel of forward-looking sell outlets in India on the unrivalled(a) top and frequent sale seasons and talks of belowper constructance on the other allude to a motley bag and make us query whether the welkin is on the right harvest-tide trajectory. In this report, rather than providing with just the facts, we have a bun in the oven tried to infra yield the forward-looking sell atomic form 18na from an economist’s point of view and visualize its future-whether it is in its intricacy or contraction phase.Motivated by the uphill per-capita incomes and append spending on consumer goods, modern sell stores argon coming up with mod st placegies and plans to unlock the Pandora box of the untapped and un organised sell field. In the trail of the report, we try to ca intent out †how the retail heavens works, major(ip) regulations that affect its cognitive operatio n and the challenges that await the sector and summarize with our compend and recommendations. Note: We have used where we’ve gougevass the situation from a micro- sparing point of view. INTRODUCTIONThe retail sector in India potentiometer by and hulky be categorize promulgatement as nonionized and unformed where the sh ar of nonunionised sector is more(prenominal) than 93% of the hail and acknowledges the kirana stores, ma and pop stores and the ilk. The form or modern retail sector on the other hand captures a mere 7% of the total foodstuffplace place parcel. Modern retail is defined as a form of retailing whereby consumers can buy goods from a quasi(prenominal) purchase surround across more than one physical reparation and ope range under three directs: Specialist stores offer to some particular category of produce such(prenominal) as nibblewear, pharma & adenine; beauty, food and grocery etc. classified under level I. Departmental stores that cater to a few categories of retail throw under level II, and malls where we find an agglomeration of umteen departmental stores, hypermarkets etc †classified under level III retail. The figure 1 under shows the various fakes at varied levels of retail. retail stores can to a fault be classified under ‘ life style’, ‘ comfort’ and ‘ lavishness’ formats based upon the consumer income segment they target.Figure : Players operating(a) at distinct levels Figure: unionized sell Although, the sector boasts of c e preciseplaceing almost all the verticals, a look at the markets under different verticals shows that organise Retail sixth sense is extremely low †2. 4 per cent †for the food and grocery, which in contrast makes up for the biggest part of the total retail market. The appargonls, foot wear and seat decor argon the major contri countenancedors under organized retail and have been prospering at a rapid pace.The figures below depict the market per centum and Organized Retail shrewdness in different verticals. Figure: market place Share of Different Verticals in Organized Retail showtime: CRISIL Figure: Organized retail brainwave (%) in different verticals etymon: CRISIL Retail almost accounts for most 15% of India’s GDP and hence plays an important role in ascertain the Indian economic indicators. Organized retail became the apple of e genuinelyone’s eye when Vishal Mega securities intentness profited from its operations in different move of India.Soon, other players started with their own retail gyves such as V-Mart, Big bazar, Subhiksha, Pantaloons et al and the market turned into a very competitive market, probably lowering the economic profits of the retail merchants, and consequently the situation promptly is that Vishal, Subhiksha and others stand fla at that place differentiated to the biggies such as doctrine, Big Bazaar and others. The major reason s for this are the marketing mix of these faults and benefits from economies of scale. However, because a number of factors go into determining business profitability, it would non be correct to give all credit to the above mentioned factors.Let’s flat look at the major player in organized retail in India. MAJOR PLAYERS The organized retail sector of India has umpteen domestic corporate houses competing with their ventures such as Tata’s Chroma, opinion Trends, Reliance white, Futures Pantaloons, RPG & so on. Other than these, fascinated by the Indian demo chartics and potentiality market, external players have entered through joint ventures with interior(a) players and are planning to compete for the share through such strategies.Major players a coarse with their crosss are shown below. * Landmark (books and music) * Croma(multi-stigma electronics) * World of colossus (watches) * Tanishq (jewellery) * Titan Eye+ (eye wear) * westside (lifestyle retail st ore) * unity Bazaar (hypermarket chain) * Fashion Yatra(family fashion store) * of import ( obtain mall) * Big Bazaar (hypermarket) * Pantaloons (fashion outlet) * Blue gear (sunglasses) * Brand Factory (multi- defect readymade garments) * KBs Fair wrong (essential products) * Navaras(jewellery) Planet Store (multi-brand sports and lifestyle enduringness retail) * aLL(fashion garments) * Ethnicity (Indian ethnic wear) * Home Town ( theater call for), * eZone(electronics), * furniture Bazaar (home furniture), * Electronics Bazaar(under Big Bazaar, electronics stores) * Home Bazaar (satellite version of Home Town) * Collection I (lifestyle furniture) * Gen M ; One Mobile (mobile phones) * M-Port (electronics) * tog Factory (footwear) * Depot (books and music) * Reliance Fresh (neighbourhood store) * Reliance Mart (supermarket) * Reliance super (mini-mart) Reliance Digital (consumer durables and selective information engineering) * Reliance Trends (apparel and accessories) * Reliance Wellness (health, wellness and beauty) * iStore(Apple products) * Reliance Footprint (footwear) * Reliance Jewels (jewellery) * Reliance TimeOut(books, music and entertainment) * Reliance AutoZone (automotive products and services) * Reliance breathing (home ware, furniture, modular kitchens and furnishings) * Music World (music and home video store) * Books ; Beyond (book store) * Spencers (multi-format retail store) K RAHEJA Shoppers Stop (clothing, accessories, fragrances, cosmetics, footwear and home furnishing store) * crossword (book store) * Inorbit Mall (fashion, lifestyle, food and entertainment) and Hyper City (hypermarket) As we can obtain that all major themes in India have opened up their retail stores catering to different sections of the social club providing for different needs of the customers. This has payoffed in a sort of noncompetitive competition in organized retail market in metro and class 1cities owing to the vast number of variants launch ing offered to the customers.However, in class 2 and 3 cities at that place are few of such modern retail stores and the market situation can be compared to oligopoly, only however because of local players and uncoordinated retail the effects of oligopoly generally wear thin’t show up. The presence of competitors in that respectfore affects not only the player, but the industry and the nation as hale. Let’s discuss in brief the effects of competition. COMPETITION AND RIVALRY Competition is one of the style to achieve economic efficiency.It restrains scathes and encourages companies to inaugurate ; provide better quality of products. In the retail sector competition is driven by many factors, including variety, products, determine, quality, service, location, reputation, credit and availability of retail space etc. It can broadly be classified under: 1. Competition because of Internal Factors The outsize number of groups in multibrand retail such as TA TA, Raheja et al and as well as one brand established remote players such as Adidas, Nike etc pose a threat to active expansion of Indian Retail. . Competition because of out-of-door Factors The organized retail industry in India is facing immense competition from the unorganized sector. traditionally, retailing has been established in India for centuries. It is a low cost structure, mostly proprietor operated, has negligible real estate and persistence costs and little or no taxes to pay. The unorganized retail sector constitutes all all over 93% of India’s total retail sector and thence, poses a serious vault for organized retailers.Because of the largely unorganized genius of Indian retail, inefficiencies have crept in and large number of intermediaries exists, reducing the functional and originative efficiency of the retail industry. The government in power has therefore been keen to move on FDI in retail in India. ascorbic acid percent FDI in hotshot bran d retail invited global companies for competition in the Indian retail sector. With this the companies are functional with a strategy so as to be able to cater to the needs of the consumers and grow volumes by ensuring footfalls, while being able to snip costs, withstand downturns, and bet competition.Here we also see a roughhewn practise to pr payoff other companies from bear on the economic status quo of a republic, by imposing barriers and caps on FDI, for example what has been do in multibrand retail. As of now, FDI in multibrand retail cannot exceed the specified cap which has unploughed global retailers such as Walmart, hybridization et al from entering the Indian market, although they fluid do exist in whole sale cash and check segment.The market structure of the modern retail is that of monopolistic competition in metros ; point I cities which usually have hundreds of obtain alternatives including multi-brand retail outlets, single brand outlets in the obtain m alls and nation-wide chains. Whereas in the tier II ; tier III cities the market structure is oligopoly in nature as they have fewer stores and somewhere only a single super centre or shopping mall. Also if we look at prices of different products in various retail outlets, we find that there is not such(prenominal) divergency between the prices, except during consequences or seasons of sale.This shows that because of the very competitive nature of modern retail, which now also includes online retail, the players are almost operating at zero economic profit, and thus don’t have much circumstance to offer different prices for same products. Moreover almost all use similar technologies and processing techniques to provide the final product and thus the prices cannot be change magnitude significantly, for fear of loss of market share. For example, Pantaloons and Westside have almost the similar brands in offering for the customer, leaving little scope for differentiation o r price dissimilitude.Price discrimination can however happen when we compare lifestyle or luxury and value format stores, value stores charging lesser price for the same product sold at a higher price in lifestyle stores. To gain advantage in such a competitive environment major retailers have started to distinguish themselves by providing products under ‘ sequestered labels’. In India, neat produce purchases are made more often from cart vendors who buy their gestate from wholesalers. Retailers have tried to bridge the disruption with direct farm procurement eliminating middlemen and introducing ‘ private labels.They are coming up with refreshed ideas to grab a major share of the market which is prospering (see figure below) because of the interest factors: The average income of the middle class state has been change magnitude at a rate of around 12%, which entrust reply in increased expenditure change magnitude proportion of working women in th e country Increasing population of employed young Increasing desire for better standards of spirit and trends in consumer expenditure Increase in the use of plastic money rising markets in Tier II and Tier III citiesFigure: Sales (in million Rs. ) plan against the financial year Source: participation official website These factors whitethorn cause a shift in the consume curve, but more number of retailers go forth be leading to enter and eventually the price would not be impacted much. in that respect would, infact a gradual shift from unorganized to the organized retail. All these and a extensive untapped market potential that’s locked in the unorganized retail has prompt modern retailers to invest heavily in marketing and advertising, to grab customer oversight and retain them.ADVERTISING Promoting the modern retail brand is very important †especially in metro and Tier I cities. The retailer must strive hard to send the USP of the brand and help the end-us ers know to which brand a particular product belongs influencing the purchase behavior of the customer. Not only in India, retail industry all over the world spends large amount of funds on advertising. The figure below shows coincidence of expenditure by the retail sector with others on online advertising in the fall in StatesFigure 5: US Online Ad wasting disease The growth of online video ads among the brand vendors and social networking are primary contributors to the growing market share of the retail sector. advertisement in modern retail is broadly through with(p) under the following three categories: Traditional Advertising Traditional advertising means advertising using traditional media such as TV, newspaper, radio, circulars, hoardings etc. For eg. we frequently see advertisements from major retail players such as Big Bazaar, Chroma etc in newspapers.Digital Advertising This form uses advertising using digital media. Video advertising, Mobile advertising etc are some of its examples. Alternative Offers Under this we may have guerilla marketing where the marketer may use graffiti, fliers, deal of the solar day type offers, groupon etc to promote or advertise the product. Website Communication or on-site confabulation evaluates how well retailers currently collect the variant of information that helps them localize their own communication theory with consumers.For this category, we evaluate two criteria: whether the retailer offers localize information about their own stores on their eCommerce site, and whether they solicit customer information †electronic mail address and mobile number, prominently on their site. The expansion of the retail sector and the intro of meta-mediaries has provided with increasing handicraft opportunities. JOB universe With a CAGR of around 14. 5% in the last five years and the gifted prospects of expansion , the the no of jobs in this sector are expected to grow at a fast pace.The existing players will have to face competition from the new players and this would also top out to opening up of new stores and thereby increasing the job opportunities in the country. Shift in consumers preference from traditional stores and shops to departmental stores and hypermarkets is definitely discharge to put pressure on retailers to provide for adequate staff and services, thereby increasing the number of multitude employed and thus creating job opportunities. The rural market is home to the 46% of the rich and prosperous people of the country. Besides, these people stay in 17% of the villages of the country.The infrastructure costs in vista up retail outlets in these places are going to be lower compared to the cities. This will encourage the emergence of regional players and would again temper to creation of jobs in many regions. However, some more prospering regions or cities which have shown good growth rates will have an edge over others, even in the same state. whatsoever is t he case, the come out has to be met with the demand, especially when there is no dearth of labor in India and job creation is highly likely, an event when it comes to the retail sector expansion and brainwave.FDI in multi-brand retail is going to be a deciding factor in creation of jobs as well. Once permitted, this will lead to aggressive competition. The immersion of new players would proportion the supply chain and farmers will be benefitted. If this happens, more people will be attracted towards farming, also contract farming would lead to creation of rural jobs. Moreover, entry of foreign investors is likely to shift the production supposition frontier outwards(see figure below), because they are more likely to invest in storage, supply chain and other capital goods.Retail sector is expected to expand by leaps and jump in the near future and this would raise a lot of jobs. The advancement of technology though can also reduce the manpower required in the long run and the jobs bring aboutd over a period of time may get killed. The entry of multi brand retailers may also adversely impact the local kirana walas, because they will be able to recover there restore cost easily and gain from economies of scale. Further, because all food and grocery require very similar capital investment, they also stand to gain from economies of scope.Figure: Expansion of Production surmisal frontier (not by reducing consumption but with introduction of new technology) novel TRENDS Growth of Modern Retail India move from being 10th largest thrift in 1990 to 4th largest in 2010 according to acquire Power Parity (PPP). The growing economy has driven the growth in per capita income of Indian consumers. Indian retail sector (organized and unorganized) has grownup by 14. 5% from 2006-07 to 2011-12 and is valued at $396 billion out of which 5-6% is the share of organized retail.Organized retail has had growth more than two-base hit of total retail. With the overall asc end the penetration of organized retail sector has increased and is expected to grow its share to 10% by the year 2016. Changing shopping behavior Shopping behavior has changed over time, with growing urbanization there has been rise in affluence and growing haulage towards branded goods. The parameters over which modern retail has been faring better than traditional retail are product assortment and range, quality, everything under single roof model. FDI in retail FDI in Single Brand:In 2006, FDI in single brand retail was permitted to the result of 51% which has recently been increased to one hundred% in Jan, 2012. There is also a mandate of sourcing of goods from local SMEs and local dealers. FDI in multi-brand sector: International retailers are allowed coulomb% ownership in cash ; carry wholesale trade stores. But similar initiative in multi-brand retail stores, i. e. allowing 51% FDI has been met by widespread rejection and has been put on hold. Online Retailing Online re tailing is gaining popularity in India with growing penetration of internet.It is expected that online retail will triple in size by 2014-15. It will be dominated by branded, low ticket size, easily transportable, lifestyle products and books. Flipkart and Yebhi. com have already established themselves as major players in this segment in the Indian market. Challenges posed by recent developments Indian government intended to carry 51% FDI in multi-retail sector but collect to its widespread opposition, it has not been canonical yet. This has put entry of world’s leading retail chain in Indian market. A lot has been give tongue to about possible loss of potential job and infrastructure development due to this.Besides that the suggested provision of sourcing from local SMEs is also proving to be a deterrent. INDIA AND THE INTERNATIONAL MARKET The graph below shows India’s status mastermind a wiz status of organized retail in other countries. It can be observed that India still has a long way to go if it wants to increase the share of organized retail in the retail market. Figure: Organized retail as a percentage of total retail in different countries Source: CRISIL In the second half of the twentieth century, many countries opened up there markets for Organized Retail and some also opened for multi-brand retail.There were some countries who felt a positive impact of the same, China is one such example; while there were others such as Uk which were adversely affected. India should also proceed with implementing FDI in multi-brand retail in phases, looking for any drawbacks, before it opens up fully. REFERENCES CRISIL Research, http://crisil. com/research/list-of-industries. html# Dun and BradStreet, http://www. dnb. co. in/IndianRetailIndustry/overview. asp Indian retail News, http://www. indiaretailnews. com/ Tata group official website, http://www. tata. com/company/profile. aspx? ectid=oH90Rc8X7Dg= Croma retail, http://www. cromaretail. com/ FDI in Retail, http://cci. gov. in/images/media/ResearchReports/FDI%20in%20Indian%20Retail%20Sector%20Analysis%20of%20Competition%20in%20Agri-Food%20Sector. pdf Futures group Official website, http://futuresgroup. com/ BIBLIOGAPHY Economics by Samuelson and Nordhaus ——————————————†[ 1 ]. Lifestyle formats include departmental stores and specialty stores [ 2 ]. Value formats include supermarkets and hypermarkets [ 3 ]. Retailers can use price differentiation to gain from the consumer surplus [ 4 ].Private labels or private brands  are the brands that are owned and sold by  retailers at their stores  and are typically priced lower (5-15 percent)  as compared to the existing brands. [ 5 ]. These factors will result in a shift of demand curve to the right [ 6 ]. Source: CRISIL [ 7 ]. Organised retail penetration expected to cross 10 per cent by 2016-17 [ 8 ]. In such cities, the number of market players is very large forming a monopolistic market, brand lieu thus becomes very important to create great brand recall value. [ 9 ]. Unique Selling Proposition [ 10 ]. Opened up multi brand retail in phases.\r\n'