Am Final Term Paper

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VIGNANA JYOTHI INSTITUTE OF MANAGEMENT Page 1

ContentsINTRODUCTION TO RETAIL SECTOR .............................................................................................................. 2

INTRODUCTION TO RETAIL INDUSTRY IN INDIA ........................................................................................... 2

FUTURE OF RETAIL INDUSTRY IN INDIA ........................................................................................................ 3

MAJOR RETAILERS IN INDIA .......................................................................................................................... 4

Pantaloon: ................................................................................................................................................. 4

Tata Group: ............................................................................................................................................... 4

RPG Group:................................................................................................................................................ 5

Reliance: .................................................................................................................................................... 5

AV Birla Group:.......................................................................................................................................... 5

PROBLEMS FACED BY RETAIL INDUSTRY IN INDIA ........................................................................................ 5

CONSUMERS SHOPPING ORIENTATION ........................................................................................................ 6

KEY PERFORMANCE INDICATORS (KPI) ......................................................................................................... 6

KPI FOR RETAIL SECTOR ................................................................................................................................ 7

CUSTOMER CENTRIC INDICATORS ............................................................................................................ 8

SALES METRICS.......................................................................................................................................... 9

OTHER METRICS: ..................................................................................................................................... 10

CONCLUSION ............................................................................................................................................... 12

BIBLIOGRAPHY ............................................................................................................................................ 13


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INTRODUCTION TO RETAIL SECTOR

Retailing involves all activities incidental to selling to ultimate consumer for their personnel

family and household use. It does this by organizing their availability on a relatively large scale

and supplying them to customers on a relatively small scale. Retailer is any person/organization

instrumental in reaching the goods or merchandise or services to the end users. Retailer is a must

and cannot be eliminated.

Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who

are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets

and retail chains, and also the privately owned large retail businesses. Unorganized retailing, on

the other hand, refers to the traditional formats of low-cost retailing, for example, the local

kirana shops, owner manned general stores,paan/beedi shops, convenience stores, hand cart and

pavement vendors, etc.

INTRODUCTION TO RETAIL INDUSTRY IN INDIA

The Indian retail industry is the fifth largest in the world. Comprising of organized and

unorganized sectors, India retail industry is one of the fastest growing industries in India,

especially over the last few years. Though initially, the retail industry in India was mostly

unorganized, however with the change of tastes and preferences of the consumers, the industry is

getting more popular these days and getting organized as well. With growing market demand, the

industry is expected to grow at a pace of 25-30% annually.

The India Retail Industry is the largest among all the industries, accounting for over 10 per cent

of the countrys GDP and around 8 per cent of the employment. The Retail Industry in India has

come forth as one of the most dynamic and fast paced industries with several players entering the


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market. But all of them have not yet tasted success because of the heavy initial investments that

are required to break even with other companies and compete with them. The India Retail

Industry is gradually inching its way towards becoming the next boom industry.

A large young working population with medium age of 24 years, nuclear families in urban areas,along with increasing working women population and emerging opportunities in the services

sector are going to be the key factors in the growth of the organized Retail sector in India. The

growth pattern in organized retailing and in the consumption made by the Indian population will

follow a rising graph helping the newer businessmen to enter the India Retail Industry.

In India the vast middle class and its almost untapped retail industry are the key attractive forces

for global retail giants wanting to enter into newer markets, which in turn will help the India

Retail Industry to grow faster. Indian retail is expected to grow 25 per cent annually. Modern

retail in India could be worth US$ 175-200 billion by 2016. The Food Retail Industry in India

dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7

billion business, growing at over 20 per cent per year. The future of the India Retail Industry

looks promising with the growing of the market, with the government policies becoming more

favorable and the emerging technologies facilitating operations.

FUTURE OF RETAIL INDUSTRY IN INDIA

The retail industry in India is currently growing at a great pace and is expected to go up to US$

833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year 2018 at a

CAGR of 10%. As the country has got a high growth rates, the consumer spending has also gone

up and is also expected to go up further in the future. In the last four year, the consumer spending

in India climbed up to 75%. As a result, the India retail industry is expected to grow further in

the future days. By the year 2013, the organized sector is also expected to grow at a CAGR of

40%.

According to a McKinsey & Company report titled 'The Great Indian Bazaar: Organized Retail

Comes of Age in India', organized retail in India is expected to increase from 5 per cent of the


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total market in 2008 to 14 - 18 per cent of the total retail market and reach US$ 450 billion by

2015.

Furthermore, according to a report titled 'India Organized Retail Market 2010', published by

Knight Frank India in May 2010 during 2010-12, around 55 million square feet (sq ft) of retailspace will be ready in Mumbai, national capital region (NCR), Bengaluru, Kolkata, Chennai,

Hyderabad and Pune. Besides, between 2010 and 2012, the organized retail real estate stock will

grow from the existing 41 million sq ft to 95 million sq ft.

MAJOR RETAILERS IN INDIA

Pantaloon:

Pantaloon is one of the biggest retailers in India with more than 450 stores across the country.

Headquartered in Mumbai, it has more than 5 million sq. ft retail space located across the

country. It's growing at an enviable pace and is expected to reach 30 million sq. ft by the year

2010. In 2001, Pantaloon launched country's first hypermarket Big Bazaar. It has the following

retail segments:

Food & Grocery: Big Bazaar, Food Bazaar Home Solutions: Hometown, Furniture Bazaar, Collection-i Consumer Electronics: e-zone Shoes: Shoe Factory Books, Music & Gifts: Depot Health & Beauty Care: Star, Sitara E-tailing: Futurebazaar.com Entertainment: Bowling Co.

Tata Group:

Tata group is another major player in Indian retail industry with its subsidiary Trent, which

operates Westside and Star India Bazaar. Established in 1998, it also acquired the largest book


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and music retailer in India Landmark in 2005. Trent owns over 4 lakh sq. ft retail space across

the country.

RPG Group:

RPG Group is one of the earlier entrants in the Indian retail market, when it came into food &

grocery retailing in 1996 with its retail Food world stores. Later it also opened the pharmacy and

beauty care outlets Health & Glow.

Reliance:

Reliance is one of the biggest players in Indian retail industry. More than 300 Reliance Fresh

stores and Reliance Mart are quite popular in the Indian retail market. It's expecting its sales to

reach Rs. 90,000 crores by 2010.

AV Birla Group:

AV Birla Group has a strong presence in Indian apparel retailing. The brands like Louis Phillipe,

Allen Solly, Van Heusen, and Peter England are quite popular. It's also investing in other

segments of retail. It will invest Rs. 8000-9000 crores by 2010.

PROBLEMS FACED BY RETAIL INDUSTRY IN INDIA

The organized retail industry in India is faced with stiff competition from theunorganized sector.

Opposition to Foreign Direct Investment from small traders affects retail industry. Very high stamp duties on transfer of property affect the industry. Shortage of retail space in central and downtown locations also hinders the growth of

retail industry.

Rigid building laws makes procurement of retail space difficult. Non residents are not allowed to own property except they are of Indian origin. Customs duties are levied on import of goods in India.


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CONSUMERS SHOPPING ORIENTATION

Social shopping: Most of the older generation Y consumer goes shopping with friendsand family for the purpose of socializing.

Idea shopping: The second significant motivational factor for visiting malls bygeneration Y consumer. They go shopping to keep up with trends, to keep up with new

fashions, to see all the new products available and to experience new things.

Role shopping : The third significant factor, which reflects the enjoyment that shoppersderive from shopping for others, the influence that this activity has on the shoppers

feelings and moods, and the excitement and intrinsic joy felt by shoppers when finding

the perfect gift for others.

Adventure shopping: Adventure shopping, refers to shopping for stimulation, adventure,and the feeling of being in another world. A significant number of respondents reported

that they go shopping for the sheer excitement.

Value shopping: Value shopping refers to shopping for sales, looking for discounts, andhunting for bargains.

Gratification shopping: Gratification shopping, involves shopping for stress relief,shopping to alleviate a negative mood, and shopping as a special treat to oneself.

KEY PERFORMANCE INDICATORS (KPI)

Key Performance Indicators, also known as KPI or Key Success Indicators (KSI), help an

organization define and measure progress toward organizational goals. Once an organization has

analyzed its mission, identified all its stakeholders, and defined its goals, it needs a way to

measure progress toward those goals. Key Performance Indicators are those measurements.

Key Performance Indicators are quantifiable measurements, agreed to beforehand, that reflect the

critical success factors of an organization. They will differ depending on the organization. A

business may have as one of its Key Performance Indicators the percentage of its income that

comes from return customers. A Customer Service Department may have as one of its Key

Performance Indicators, in line with overall company KPIs, percentage of customer calls


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answered in the first minute. A Key Performance Indicator for a social service organization

might be number of clients assisted during the year. Key Performance Indicators usually are

long-term considerations. The definition of what they are and how they are measured do not

change often. The goals for a particular Key Performance Indicator may change as the

organization's goals change, or as it gets closer to achieving a goal.

Categories of KPI:

Quantitative indicators which can be presented as a number. Practical indicators that interface with existing company processes. Directional indicators specifying whether an organization is getting better or not. Actionable indicators are sufficiently in an organization's control to effect change. Financial indicators used in performance measurement and when looking at an

operating index.

KPI FOR RETAIL SECTOR

Key performance indicators in Retail help to track individual performance. They tell us about

trends, behaviors, opportunities to increase performance, and they forecast the short to medium

term futureenabling us to understand why and where we are heading. Statistical measurement

of fundamental sales performance drivers for any retailer is a prime need. With all manner of

spreadsheets, Dashboards and Scorecards, Key Performance Indicators (KPI) is used to

communicate the strategy of the shareholders to the individuals in the company and we employ

feedback systems to report the results. It is common practice to compare what we have forecast

with what has actually taken placestatisticallyto make judgments, changes and plans.

Some of the areas where metrics can be applied to Retail are Sales & Profitability Analysis,

Store Operations Analysis, Customer Analysis, Merchandise Management, Inventory

Management, Supplier Performance Management, Marketing and E-commerce Analysis, Market

Basket Analysis, Category Management, Brand & Marketing Research, Market Share Analysis,

etc.


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CUSTOMER CENTRIC INDICATORS

Customer Gross Profit: Customer GROSS Profit = Customer Sales - Customer Cost ofGoods Sold for a period

Customer Lifetime Purchase Value: Monetary value of each customer's life time purchasesfrom the retailer

Customer profitability: Customer Profitability = Customer Sales - (Customer Returns -Customer Cost of Goods Sold + Customer Promotion Expenses + Activity Based Cost of

Servicing Customer) for a period

Customer Purchase Freq Count: Count of customer purchases transactions over a period oftime

Customer Purchase Value: Monetary value of each customer purchase during a period withan average value for all purchases for the period

Customer Reference question: A rating from 0 to 10 that indicates if the customer wouldrecommend the store.

Customer Sales by Segment: This formula is dependent upon defining customer segments(based on age, education, lifestyle, income and other factors) and associating individual

customers to specific segments.

Units sold per customer: Measures the average number of units sold by the store on a percustomer basis.

Customers per day: Measures the average number of customer the store manages to attracton a per day basis.

Store loyalty: Measures the extent at which store customers are loyal, loyalty being definedbased on several attributes, such as size of purchases, time spent in store, frequency of

purchase etc.

Frequency of store visits: Measures the average number of times a customer visits the storein period.

Average Sale per Customer/Transaction: Total sales for a given period divided by thenumber of customers or transactions for the same period


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Units per Customer/Transaction: Total number of units sold in a given period divided bythe number of customers or transaction for the same period

Profit per Customer Visit: Profit obtained from each customer visit. This way you caneasily set goals for your sales team in order to increase profits.

SALES METRICS

Visit to Buy Ratio: Sales Transaction Count per period / Visit Count Per Period Sales compared to last year (or any other period): Actual sales for a given period divided

by actual sales for the period you want to compare to

Average Sale: The average selling price of each individual salesperson compared toeveryone else on the shift higher averages show a greater knowledge of product as the

salesperson is able to sell higher ticket items. Low statistics reveal the salesperson lacks skill

in either product knowledge or effective probing.

Items per Sale: Tells us about the ability of the salesperson to add-on to a sale. Inventory to sales ratio (ISR): Measures the ratio between the retailer's inventory value and

the sales volume.

Sales per Square Foot: Actual sales for a given period (usually a month or a year) dividedby the total floor area (in sq.ft.) of the store.

Sales per hour: A statistic tells us about the speed at which each individual salesperson isselling or attending to customers compared to everyone else on the shift

Sales per Hour (for store or associate) selling hours only: Actual sales for the storedivided by the number of selling* hours during the same period*selling hours are used here

rather than total labor hours.

Sales per Hour (for store or associate) total labor hours: Actual sales for the storedivided by the number of labor hours used during the same period.

Wage to Sales Ratio: Compares a salespersons hourly wages to hourly sales. This KPI identifies yourclear performers and underperformers and their value to you.

Average sales per customer or transaction: Total sales for a given period divided by thenumber of customers or transactions for the same period


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Sales per square foot / meter: Actual sales for a given period divided by the total floor area(in sq.ft. or meters) of the store. There are variants of this indicator in terms of sales per

square foot of merchandisable area of choice (like walls and display units) percentage (%) of

total stock that is not displayed to customersmost applicable in certain retail sectors

Inventory Sales per selling hour: Actual sales for the store divided by the number of sellinghours during the same period

OTHER METRICS:

Conversion rate: The number of transactions in a given period divided by the total numberof customers who entered the store during the same period

Time Spent in the Store: Average time spent by customers in the store can be measuredthrough sophisticated techniques utilizing RFID and wireless technologies or manually.

Reason for this measurement: There is a direct correlation between time customers spend in a

store and how much they buy.

Product lines sold per transaction: Measures the retail sales width, as the average numberof items from different product lines sold on a per customer purchase basis.

Stock lines out of stock: Measures the number of stock lines that were not available in thestore during the period.

Volume of purchase: Measures the average volume of a purchase made by store visitors inperiod, by type of product.

Perishable items with past due date: Measures the proportion of perishable items in a storethat are past due date.

Inventory Turns: This KPI tells us how often the average inventory over a given period oftime (usually a year) is sold in that same period of time

Inventory Store conversion rate: The number of transactions in a given period divided bythe total number of customers who entered the store during the same period

Coupon conversion percentage: Percentage of coupons that have been used by customers Price premium : The relative price of a product compared to a benchmark price (average

retail price)

Promotion share: Share of promotion products in percentage (%) of total sales


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Sell-through percentage (%): Is a percentage of units sold during a period and it iscalculated by dividing the number of units sold by the beginning on-hand inventory (for that

same time period)

Scanning percentage in store: Indicates the % of products purchased is scanning properlyin store

Percentage of perishable items with past due date: Number of perishable items with pastdue date as a percentage of all items in store

Product visibility on shelf: Measures the amount of frontal views of a single product-package on a fully stocked shelf

Sales Product share on shelf: Compares product visibility as a percentage to all products onshelf

Sales Gross Margin Return on Inventory Investment: The GM ROII multiplies InventoryTurns (which tells us how healthy our stock is) by Gross margin (which tells us the

percentage of profit we make on each sale)

Formula:

GM ROII = Gross Margin % * Inventory Turns

Inventory Turns = Sales / Average Inventory

Gross Margin = Profit / Selling Price * 100

Or:

Gross Margin = (Selling PriceBuying Price) / Selling Price * 100

Break-even and depreciation scaling: To calculate break-even and depreciation scaling infunction of time and obsolescence of products, especially to help fashion players to measure

the effect of those actions. Compares selling of a particular item code in the normal period

and during various periods, each one with a different percentage of discount, defining a ratio.

Must-Have Effect: To analyze the convenience of converting in continuative products, itemsthat instead should last just one season, but that are so appreciated and successful to become

must-have bestsellers. The success of an item in fact should be determined by measurable

factors (such as the quality/price ratio) but also by non-tangible effects (i.e. advertisement,

innovation, trendiness, VIPs wearing publicly the item etc.)


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CONCLUSION

The status of the retail industry will depend mostly on external factors like Government

regulations and policies and real estate prices, besides the activities of retailers and demands ofthe customers also show impact on retail industry. As the retail market place changes shape and

competition increases, the potential for improving retail productivity and cutting costs is likely to

decrease. Therefore it is important for retailers to secure a distinctive position in the market place

based on values relationships or experience with apt strategies in place to improve the efficiency

and profit margins.


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BIBLIOGRAPHY

1. "India Retail Industry."Business Directory. Web. 02 Mar. 2011..

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Entrance Exams, Courses, Training, Class Work, Home Work, Application Forms. Web.

Mar. 2011. .

3. Industry, The. "Retail in India - Indian Retail Market, India Retail Industry, Retail Sectorin India."Business and Trade Events Directory - International Trade Shows,

Conferences. Web. .

4. "An Introduction to Indian Retail Industry." Free Articles Directory | Submit Articles -ArticlesBase.com. Web. .

5. "KPI for Retail Business." CiteHR Human Resource Management. Web..

6. KPIs, Monitoring These. "KPI for Retail | BI Blog | Business Intelligence (BI) Blog."BIBlog | Business Intelligence Blog | MAIA Intelligence BI Blog. Web. .

7. "Problems Faced by Organized Retail Industry in India."MBA in India :: Distance MBACourses in India | BBA Colleges in India | MBA Jobs | CAT | XAT | MAT 2010 / 2011 .

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8. Reh, F. John. "Key Performance IndicatorsWhat Are Key Performance Indicators orKPI."About Management - Business Management - People Management - and More.

Web. .

9. "Retail."India Knowledge Centre. Web. .10."Retail Key Performance Indicators."Retail Management-Retail Management Success

Guides and Information. Web.


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11."Starting a Retail Business - Retail Key Performance Indicators (KPI) Maximise Sales."Hillsorient - Design, Internet, Lifestyle, Business. Web.

.

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