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Retail Management & Retail Mix

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Retail Management & Retail Mix, The Impact of FDI in Retail in both developed and developing countries
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1 ITM,VASHI Retail Management Impact of FDI in Retail Arun Balkrishna Khedwal 2 nd August 2014 Ref No: VAS2012XMBA25P001
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  • 1. 1ITM,VASHIRetail ManagementImpact of FDI in RetailArun Balkrishna Khedwal2nd August 2014Ref No: VAS2012XMBA25P001

2. 2Chapter NoTopic detailsPage No1Introduction Retailing3-13o Classification of Retail Formatso Benefits of Retailerso Ways to Categorize Retailerso Retail Categories: Pricing Strategy2Retail Mix14-243Retail in India25-30o Retail in India - The Past, Present and Future4FDI in Retail31-56o Indian Retail: FDI -The Implicationso Foreign Direct Investment (FDI) in Indiao Lessons from a global perspectiveo Impact of organized retail on unorganized Retail (Case Study China)o Impact of FDI in other parts of the world5Conclusion and Recommendation57-69o Pros and Cons of FDI in Retail in Indiao Conclusion 3. 31.1 RetailingDefinitionCommercial transaction in which a buyer intends to consume the good or service through personal, family, or household use.Retailing is a distribution channel function where one organization buys products from supplying firms or manufactures the product themselves, and then sells these directly to consumers. A retailer is a reseller (i.e., obtains product from one party in order to sell to another) from which a consumer purchases products.In the majority of retail situations, the organization from which a consumer makes purchases is a reseller of products obtained from others and not the product manufacturer. Some manufacturers operate their own retail outlets in a corporate channel arrangement. While consumers are the retailers buyers, a consumer does not always buy from retailers. For instance, when a consumer purchases from another consumer (e.g., eBay) the consumer purchase would not be classified as a retail purchase. This distinction can get confusing but in the US and other countries the dividing line is whether the one selling to consumers is classified as a business (e.g., legal and tax purposes) or is selling as a hobby without a legal business standing.Figure 1.1.1 Retail ManagementChapter 1: Introduction 4. 4As a reseller, retailers offer many benefits to suppliers and customers as we discussed in the Distribution Decisions tutorial. For consumers the most important benefits relate to the ability to purchase small quantities of a wide assortment of products at prices that are considered reasonably affordable. For suppliers the most important benefits relate to offering opportunities to reach their target market, build product demand through retail promotions, and provide consumer feedback to the product marketer.The practice of retailing is continuously evolving. New formats are born and old ones die. Incessant pressure to improve efficiency and effectiveness and a continual effort to serve the customer better forces the retailers to find new ways of doing business. This has also resulted in a shortened lifecycle for retail formats. For example, in the late 1980s most retail experts agreed that hypermarkets would be retailings success story of the 1990s. However, despite their overwhelming success in Europe and their limited success in the United States, these mega stores were retailings biggest failure in the 1990s. The customers were unnerved by the sheer size of these stores. In addition, category killers offered greater selection and wholesale clubs offered better prices, while supermarkets and discounters offered more convenient locations. Another retail format that didnt achieve the success predicted was the off- price retailer because the regular merchants, including discounters, became more prices competitive on the brands the off-pricer was currently selling. Although these retailing formats have not lived up to expectations, many other new formats are emerging.Figure 1.1.2 Evolution of Indian Retail Market 5. 51.2 Classification of Retail FormatsThe term retail institution refers to the basic format or structure of a business. Classification for Retail institutions is necessary to enable firms to better understand and enact their own strategies: selecting an organizational mission, choosing an ownership alternative, defining the goods/ service category and setting objectives.The classification is not mutually exclusive; that is, an institution may be correctly placed in more than one category. For example, a department store unit may be part of a chain, have a store-based strategy, accept mail order sales, and have a Web site. These are commonly used typographies. They are likely to vary between countries. For instance, a Kirana store in India or car boot sales in the UK.Ownership BasedRetailing is one of the few sectors in our economy where entrepreneurial activity is extensive. Although retailers are primarily small (80% of all stores are operated by firms with one outlet and over one-half of all firms have two or fewer paid employees), there are also very large retailers.Retail firms may be independently owned, chain owned, franchisee operated, leased departments, owned by manufacturers or wholesalers, consumer owned. From a positioning and operating perspective, each ownership format delivers unique value. Retail executives must work on the strengths and weaknesses inherent in each of these formats to be successful.IndependentsAn Independent retailer owns a single retail unit. In the United States, they account for nearly 80 percent of total retail establishments and firms generate just 3 percent of total U.S. store sales. One half of all independents are run entirely by the owners and/or their families and have no paid workers. The high number of independent retailers is associated with the ease of entry into the marketplace, owing to low capital requirement, no or relatively simple, licensing procedures. The ease of entry into retailing is reflected in the low market shares of the leading firms in many goods /service categories as a percentage of total category sales. For example, in the grocery store category where large chains are quite strong, the five largest grocery retailers account for only about 22 percent of sales. A similar large format in India contributed to less than 3% of total retail sales. The Indian retail market has around 12 million outlets and has the largest retail outlet density in the world. However, most of these outlets are basic mom-and-pop stores with very basic offerings, fixed prices, and no ambience. These are highly competitive stores due to 6. 6cheap land prices and labour. Also, most of the time these stores save tax as they belong to the small industry sector.Due to relative ease of entry into retailing, there is a great deal of competition resulting in the high rate of retail business failures among new firms. According to Small Business Administration estimates one-third of new U.S. retailers do not survive their first year and two thirds do not continue beyond their third year. Most of the failures involve independents.These stores have a great deal of flexibility in choosing retail formats and locations. They target smaller consumer segments rather than mass markets. Since only one store location is involved, detailed specifications can be set for determining best location, product assortments, prices, store hours, and other factors consistent with their target segment. They have low investments in terms of lease, fixtures, workers and merchandise. Thirdly, independents often act as specialists and acquire skills in a niche for a particular goods/service category. Decision-making in these stores is usually centralised as the owner operator is typically on the premises, who have a strong entrepreneurial drive as they have personal investment in the business, success or failure has huge implications, and there is a lot of ego involvement. They are consistent in their efforts as they generally adopt just one strategy.There are some disadvantages of independent retailing. They have limited bargaining power with suppliers as they often buy in small quantities. Reordering may also be tough if minimum order requirements are too high for them to qualify. To overcome this problem, a number of independents form buying groups. Due to low economies in buying and maintaining inventory, the transportation, ordering, and handling costs are higher. These stores often have operations that are labour intensive, sometimes with little computerisation. Ordering, taking inventory, marking items, ringing up sales and bookkeeping may be done manually as most independents tend to find investment in technology and training not worthy. Compared to other formats, Independents incur high costs of advertising due to limited access to advertising media and may pay higher fees compared to regular users. There is often disruption when the owner is ill, on vacation, or retires. They also allocate limited amount of time and resources to long term planning. To offset the disadvantage of economies, these retailers offer complementary merchandise and services. Often while all stores in the chain offer the same merchandise, independents can provide merchandise compatible with local market needs. 7. 7ChainsA chain retailer operates multiple outlets (store units) under common. In developed economies, they account for nearly a quarter of retail outlets and over 50 percent of retail sales. Retail chains can range from two stores to retailers with over 1,000 stores. Some retail chains are divisions of larger corporations or holding companies.Chain Retailers have several advantages. They enjoy strong bargaining power with suppliers due to the volumes of purchases. They generally bypass wholesalers. Many of them buy directly from the manufacturers. Suppliers service the orders from chains promptly and extend a higher level of proper service and selling support. New brands reach these stores faster. Most of these chains sell private. Chains achieve efficiency due to the centralisation of purchasing and warehousing and computerisation. Wider geographic coverage of markets allows chains to utilize all forms of media. Most of the chains invest considerable time and resources in long term planning, monitoring opportunities and threats.Chain retailers suffer from limited flexibility, as they need to be consistent throughout in terms of prices, promotions, and product assortments. Chain retailers have high investments in multiple leases, fixtures, product assortments and employees. Due to their spread, these retailers have reduced control, lack of communication and time delays. Thus, such retailers focus on managing a specific retail format for a better strategic advantage and increased profitability. Some chain retailers capitalise on their widely known image and adopt flexibility to market changes.FranchisingFranchising is a contractual agreement between a franchiser and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchiser. Approximately one third of all U.S. retail sales are made by franchisees. In a franchise contract the franchisee pays a lump sum plus a royalty on all sales for the right to operate a store in a specific location. The franchisee also agrees to operate the outlet in accordance with procedures prescribed by the franchisers. The franchiser provides assistance in locating and building the store, developing the products and/or services sold, management training and advertising.There are two types of franchising: product/ trademark and business format. In product/ trademark franchising, franchisees acquire the identities of the franchiser by agreeing to sell the latters product and/or operate under the latters names. But they are independent in their operation. They may draw certain operating rules in consultation with the franchiser. In a business format franchising arrangement, the two parties have a synergetic relationship. The 8. 8franchiser provides assistance in strategic and operation issues besides the right to sell goods and services. The franchisees can take advantage of prototype stores, standardised product lines and cooperative advertising.Three structural arrangements are found in retail franchising.(a) Manufacturer- retailer; where a manufacturer the right to sell goods and related services through a licensing agreement as in the case of automotive dealers and petroleum products dealers.(b) Wholesaler- retailer; which may take the form of a voluntary franchise system as in consumer electronic stores or co-operative where a group of retailers set up a franchise system and share the ownership and operations of a wholesaling organisation.(c) Service sponsor retailer, where a service firm licenses individual retailers to let them offer specific service package to consumers, such as auto rental, hotels and fast food restaurants.This arrangement has several advantages. Individual franchisees can own retail enterprises with relatively small capital investments. Franchisers gain a national or global presence quickly and with less investment. It improves cash flow as money is obtained when goods are delivered rather than when they are sold. Since franchisees are owners and not employees, they have a greater incentive to work hard.Franchisees may also have to face certain disadvantages. Over saturation could occur adversely affecting the sales and profits of each unit. They may enter into contract provisions that give the franchisers undue advantage. The can exclude franchisees from, or limit their involvement in, the strategic planning process. Franchisers also face a lot of potential problems. Franchisees can harm a firms overall reputation and/ or customer loyalty if they do not adhere to company standards. Intra-franchise competition is not desirable. Ineffective franchised units directly impact franchiser profitability from selling services, materials, or products to the franchisees and from royalty fees. Franchisees, in greater numbers, are seeking independence from franchiser rules and regulations.Leased DepartmentA Leased Department is a department in a retail store rented generally by a manufacturer. The lessee is responsible for all aspects of business and pays the store a rent. The store may impose operating restrictions for the leased department to ensure the overall consistency. The leased departments choose to operate in categories that are generally on the fringe of the stores major product lines, such as in-store beauty salons, banks, photographic studios and food courts. 9. 9Leased departments help the stores in generating greater traffic and providing one stop shopping. They benefit from expertise of lessees in personal management, merchandise displays, the recording of items, as store personnel might lack the merchandising ability to handle and sell certain goods and services. This is also a regular source of revenue and reduces costs as leased departments pay for inventory and personal expenses. This may also be a source of conflict with lessees as leased departments may use operating procedures which conflict with those of the stores. The lessees may adversely affect stores images and customers may blame problems on the host stores rather than on the lessees.The leased department operators benefit as the main store generates immediate sales for leased departments. This arrangement reduces expenses through economics of scale (like pooled advertising) and shared facilities (like security equipment and display windows). Also lessees images are aided by there relationships with popular stores. However, there may be inflexibility due to the restrictions imposed by the operations of the main store. There is always the fear that the stores may raise the rent or may not renew leases when they expire even if lessees are successful.1.3 Benefits of RetailersAs a reseller, retailers offer many benefits to suppliers and customers as we discussed in the Distribution Decision Tutorial. The major benefits for each include:Access to Customers: For suppliers, the most valuable benefits provided by retailers are the opportunities they offer for reaching the suppliers target market, building product demand through retail promotions, and providing consumer feedback. The knowledge and skills offered by retailers are key for generating sales, profits, and customer loyalty for suppliers.Access to Product: For consumers, the most significant benefits offered by retailers relate to the ability to purchase products that may not otherwise be easily available if the consumers had to deal directly with product suppliers. In particular, retailers provide consumers with the ability to purchase small quantities of a wide assortment of products at prices that are considered reasonably affordable. Additionally, when it comes to retailers with physical locations (e.g., retail store), these are likely to be located near the retailers target market; thereby, enabling consumers to make purchases and take home the product much more conveniently than if they had to visit a product suppliers facility or purchase via the Internet. 10. 101.4 Ways to Categorize RetailersThere are many ways retailers can be categorized depending on the characteristics being evaluated. For our purposes we will separate retailers based on six factors directly related to major marketing decisions: Target Markets Served Product Offerings Pricing Structure Promotional Emphasis Distribution Method Service LevelAnd one operational factor: Ownership StructureHowever, these groups are not meant to be mutually exclusive. In fact, as we will see in some way all retailers can placed into each category.The first classification looks at the type of markets a retailer intends to target. These categories are identical to the classification scheme we saw in the Distribution Decisions tutorial when we discussed the levels of distribution coverage.Mass Market: Mass market retailers appeal to the largest market possible by selling products of interest to nearly all consumers. With such a large market from which to draw customers, the competition among these retailers is often fierce.Specialty Market: Retailers categorized as servicing the specialty market are likely to target buyers looking for products having certain features that go beyond mass marketed products, such as customers who require more advanced product options or higher level of customer service. While not as large as the mass market, the target market serviced by specialty retailers can be sizable.Exclusive Market: Appealing to this market means appealing to discriminating customers who are often willing to pay a premium for features found in very few products and for highly personalized services. Since this target market is small, the number of retailers addressing this market within a given geographic area may also be small.1.5 Retail Categories: Product OfferingsUnder this classification retailers are divided based on the width (i.e., number of different product lines) and depth (i.e., number of different products within a product line) of the products they carry. 11. 11General Merchandisers: These retailers carry a wide range of product categories (i.e., broad width) though the number of different items within a particular product line is generally limited (i.e., shallow depth).Multiple Lines Specialty Merchandisers: - Retailers classified in this category stock a limited number of product lines (i.e., narrow width) but within the categories they handle they often offer a greater selection (i.e., extended depth) than are offered by general merchandisers. For example, a consumer electronics retailer would fall into this category.Single Line Specialty Merchandisers: Some retailers limit their offerings to just one product line (i.e., very narrow width), and sometimes only one product (i.e., very shallow depth). This can be seen online where a relatively small website may sell a single product such as computer gaming software. Another example may be a small jewellery store that only handles watches.1.6 Retail Categories: Pricing StrategyRetailers can be classified based on their general pricing strategy. Retailers must decide whether their approach is to use price as a competitive advantage or to seek competitive advantage in non-price ways.Discount Pricing: Discount retailers are best known for selling low priced products that have a low profit margin (i.e., price minus cost). To make profits these retailers look to sell in high volume. Typically discount retailers operate with low overhead costs by vigorously controlling operational spending on such things as real estate, design issues (e.g., store layout, website presentation), and by offering fewer services to their customers.Competitive Pricing: The objective of some retailers is not to compete on price but alternatively not to be seen as charging the highest price. These retailers, who often operate in specialty markets, aggressively monitor the market to insure their pricing is competitive but they do not desire to get into price wars with discount retailers. Thus, other elements of the marketing mix (e.g., higher quality products, nicer store setting) are used to create higher value for which the customer will pay more.Full Price Pricing: Retailers targeting exclusive markets find such markets are far less price sensitive than mass or specialty markets. In these cases the additional value added through increased operational spending (e.g., expensive locations, more attractive design, more services) justify higher retail prices. While these retailers are likely to sell in lower volume than discount or competitive pricing retailers, the profit margins for each product are much higher. 12. 121.7 Retail Categories: Promotional FocusRetailers generate customer interest using a variety of promotional technique, yet some retailers rely on certain methods more than others as their principle promotional approach.Advertising: Many retailers find traditional mass promotional methods of advertising, such as through newspapers or television, continue to be their best means for creating customer interest. Retailers selling online rely mostly on Internet advertising as their promotional method of choice.Direct Mail: A particular form of advertising that many retailers use for the bulk of their promotion is direct mail advertising through postal mail. Using direct mail for promotion is the primary way catalogue retailers distribute their materials and is often utilized by smaller local companies who promote using postcard mailings.Personal Selling: Retailers selling expensive or high-end products find a considerable amount of their promotional effort is spent in person-to-person contact with customers. While many of these retailers use other promotional methods, in particular advertising, the consumer-salesperson relationship is key to persuading consumers to make purchase decisions.1.8 Retail Categories: Distribution MethodRetailers sell in many different formats with some requiring consumers visit a physical location while others sell to customers in a virtual space. It should be noted that many retailers are not tied to a single distribution method but operate using multiple methods.Store-Based Sellers: By far the predominant method consumers use to obtain products is to acquire these by physically visiting retail outlets. Store outlets can be further divided into several categories. One key characteristic that distinguishes categories is whether retail outlets are physically connected to one or more others stores:Stand-Alone: These are retail outlets that do not have other retail outlets connected.Strip-Shopping Centre: A retail arrangement with two or more outlets physically connected or that share physical resources (e.g., share parking lot).Shopping Area: A local center of retail operations containing many retail outlets that may or may not be physically connected but are in close proximity to each other such as a city shopping district.Regional Shopping Mall: Consists of a large self-contained shopping area with many connected outlets. 13. 13Non-Store Sellers: A fast growing method used by retailers to sell products is through methods that do not have customers physically visiting a retail outlet. In fact, in many cases customers make their purchase from within their own homes.Online Sellers: The fastest growing retail distribution method allows consumer to purchase products via the Internet. In most cases delivery is then handled by a third-party shipping service.Direct Marketers: Retailers that are principally selling via direct methods may have a primary location that receives orders but does not host shopping visits. Rather, orders are received via mail or phone.Vending: While purchasing through vending machines does require the consumer to physically visit a location, this type of retailing is considered as non-store retailing as the vending operations are not located at the vending companys place of business.1.9 Retail Categories: Service LevelRetailers attract customers not only with desirable products and affordable prices, but also by offering services that enhance the purchase experience. There are at least three levels of retail service:Self-Service: This service level allows consumers to perform most or all of the services associated with retail purchasing. For some consumers self- service is considered a benefit while others may view it as an inconvenience. Self-service can be seen with: 1) self-selection services, such as online purchasing and vending machine purchases, and 2) self-checkout services where the consumer may get help selecting the product but they use self- checkout stations to process the purchase including scanning and payment.Assorted-Service: The majority of retailers offer some level of service to consumers. Service includes handling the point-of-purchase transaction; product selection assistance; arrange payment plans; offer delivery; and many more.Full-Service: The full-service retailer attempts to handle nearly all aspects of the purchase to the point where all the consumer does is select the item they wish to purchase. Retailers that follow a full-price strategy often follow the full- service approach as a way of adding value to a customers purchase. 14. 142.1 Retail MixRetail marketing mix includes all the goods and services a store is able to offer to its consumers and also all the programmed efforts of the managers that adapt the store to market environment. This definition, over fifty years old, underlines the fact that retail does not only represent products sale, but it is also a complex of goods and services. Meanwhile, marketing mix efforts must be coordinated and oriented towards market needs and opportunities.The present retail mix has developed at the same time with retail formats. It has been noticed that over the period of three decades that retailers were collectively obsessed with a particular element of the marketing mix.Thus, advertising has become an essential element of the mix during the 70s; design dominated the 80s, while loyalty programs became prominent during the 90s. At the beginning, the systematization of marketing instruments was based on retail functions.Recent literature succeeds in finding a better relationship between practical aspects of retailers activities and theoretical ones. Therefore, following a continuous evolution, marketing mix includes, depending on the details, between three and ten specific elements.Marketing mix includes nine elements: Location; assortment; product, especially private labels; store layout; price; sales financing; sales promotion; customer service; customers complaints management.Several years later, ten retail marketing elements: assortment; commercial brands; quality and quality assurance; service; price; advertising; sales promotion; store layout and merchandising; sales force; location.We have identifies only three elements, each with several subcomponents:1. Assortment and private labels:-Assortment refers to the sum of all measures designed to influence and delineate merchandise and services offer of a retailer, the multitude of the objects on sale goods, services and use rights of a retailer in a certain season, regardless of the producer, and the composition of various articles and groups of merchandise. The assortment, its structure and, more recently, the array of complementary services can be tackled from both retailers and customers sides. The assortment allows the retailer to differentiate from its competitors and to accurately position itself within a certain retail format. From customers perspective, assortment represents the opportunity to attract new consumers and to loyalise them.Chapter 2: Retail Mix 15. 15Regarding assortment, retailers and wholesalers must decide the products that will be included in the assortment, the length, width and depth of the assortment and must analyze the possible effects of including new articles and complementary services. Retailers will also have to decide upon the number of complementary services they should offer, of customers segments that could be approached and how actively they should be provided.Among the brands offered, retailers private brands occupy a special position thanks to their importance for the bind with present customers and for attaining the desired level of success. In fact, these are retailers marks placed on various articles; either produced by them or by other parties for them and marketed through their own stores. At the same time, retailers own both the property and the use rights over these private brands. In this context, the differentiation elements between retailers private labels and producers brands are quality and selling price.Generally, private brands succeed in adjusting better, faster and more efficiently to consumers lifestyles and their social, moral and psychological values.2. PriceIn retail, price occupies a central place, serving the development and application of general business strategy, the achievement of very important goals - increase of: quantitative sales; turnover; market share; profitability; presence on certain distribution channels; gross margin; the immediate effect on customers: improvement of customers perceptions of price credibility or of price-quality ratio; and on competitors using specific instruments discounts, temporary discounts, permanently low prices benefits, prices for special offers or assortments.The effects of interventions on price are rapidly perceived by both consumers and competitors. There are several instruments that can be used by retailers to influence consumers and their perceptions regarding service price, as it is revealed by certain empirical researches Price differentiation it implies the offer of the same good to various consumer segments at different price levels. Differentiation can be: quantitative (price per unit decreases as quantity purchased increases); temporal (at the end of store hours certain prices are reduced); spatial (because in various regions transportation costs may differ); customized (based on age or sex customers cards; facilities for employees or students); Price aggregation prices are established for a whole package and not for each item. The literature distinguishes among additive bundles (aggregate price = sum of individual prices); super additive 16. 16bundles(aggregate price > sum of individual prices); sub additive bundles (aggregate price < sum of individual prices); Special offers are either preplanned (active special offers) or designed to match similar competitors actions (passive special offers). They are characterized by limited and short validity time, application to a few articles and significant reduction in price. Usually, their goal is to increase the quantity sold of the promoted product or of the complementary articles, but also to improve stores results, to increase acquisitions frequency or to improve general consumers perceptions. Lowest everyday prices operated to align a retailers positions to that of its competitors; Lowest price guarantee the promise that the retailer will provide compensation in case an article can be found at a lower price somewhere else; Recommended (reference) prices aim at improving retailers overall image; Value discounts (consumers pay a lower price), monetary ones (consumers purchase the product using coupons), quantitative discounts (consumers pay regular price and receive additional items); Credit and payment facilities in order to increase frequency of purchases and quantities sold; Software packages aid managers in the optimization of sales promotions related decisions and acquisitions scenarios and in the calculation of efficiency indicators; Databases include comparative situations regarding prices charged in various stores; Online portals that allow customers to make price comparisons. The use of these instruments allows the retailer to focus on specific strategies, such as: Strategy of high, medium or low prices; Discount strategy a quality service at an attractive price; Penetration strategy lowest price in the launch phase of a product, in order to immediately increase awareness; Market skimming strategy a relatively high level of price in the launch phase to test customers payment availability; Strategy of daily, seasonal or monthly price change. 17. 173. Service and personnel policyFrom the perspective of distribution policy, service in retail companiesincludes:- Personal sale, carried out by stores staff; Multi-channel retailing refers to selling goods through several retail formats that belong to the same chain or through internet or catalogs; Supply and distribution logistics from central warehouse to regional ones and storesIn retail, just like for other services, the integration of customer in service delivery is obvious, since self-service is a fundamental characteristic of most retail stores. Moreover, service policy contributes to the differentiation and the creation of competitive advantage, the winning and binding of customers or to their information and counselling. It is important to underline the optimization of service quality through the implementation of potential goals (personnel training; logistical infrastructure; location), of processes goals (personnel politeness, time spent in lines) or results (store image, products utility).In service implementation and control retailers must take into account target segments, retail services content and quality (functional, technical), moment and frequency of service delivery, distribution channels, communication instruments and costs.Personnel policy represents a key component of service policy, for it directly contributes to the creation of consumers image of the retail store. The personnel play an essential role in attracting and binding customers to the store. In this respect, the personnel must display highly developed communication skills, adequate training, pleasant appearance, empathy, competence and objectivity in conversation, friendly attitude towards customers concerns. From retailers point of view, staff loyalisation is a priority, because loss of personnel may induce customers loss.Several studies reveal increased importance of service in retail. Complementary services increase customer satisfaction and loyalty. Also, a more complete offer has positive effects both on retailers image and turnover. Personal service and complementary services play an important part both in food and non-food retail, clothing, do-it-yourself and home appliances.4. Communication PolicyCommunication is almost as important for goods, services and retail. For aretailer the promotion of its private brands, of a particular location and personal sales are the most important aspects. 18. 18Generally speaking, communication includes all instruments and measures used by an enterprise for its own presentation and that of its services to target group. In retail, this presentation is oriented both towards inside(employees), and outside (market). Typical instruments are mass-media, prints and direct advertising, sales promotion, personal sales, public relations, internet or fairs and exhibitions. A significant matter in accomplishing an effective communication activity is to understand that target groups perceive retailers characteristics and values differently. Therefore, it is important for the retailer to know socio-demographic characteristics of its target market and to adjust its communication programs to the peculiarities of each segment, sub- segment or even individual.Depending on the market conditions or the phase in the decision process, retailers may follow one or more communication goals, be they economic or not. The second types of goals are classified into: Cognitive (attention and perception to direct attention and perception towards promotional articles; increase in brands or assortment awareness); Affective (emotional to activate implicit or new needs; to strengthen emotional positioning; transmission of entertainment value of the purchase process); Conative (behavioural increase in the recommendation intention; increase of product trials; Increase in the number of re-purchases and frequency of acquisitions)All these goals serve both to influence consumers decisions and to develoployalty relationships. The implementation of communication goals is carried out with the aid of communication instruments and of their peculiarities.TV advertising creates the fastest emotional effect upon consumers thanks tosimultaneous use of images, sounds and texts with ample multi-sensitive effects that activate memories and feelings induce states of fact or increase the intensity of perception or of nostalgia Cinema and radio advertising have a more modest impact because of the relatively narrow groups that utilize these communication media. Radio is however suitable for rapid increase in retailer or brand awareness. Magazines and newspapers ads can approach certain target consumer segments, their impact being both regional and nationalPublic relations require interrelation between retailer and its public (customers,suppliers, investors, institutions, organizations, and authorities), its stakeholders or employees. Public relations through webpage development and update, publication of reports or interviews with companys decision makers, event organization (press conferences, seminars, lectures, congresses or open doors events, fairs or exhibitions), relationship maintenance with opinion leaders and multipliers, with sponsors and journalists, reduction in the impact of negative news related to scandals, accidents, cases of expired or suspicious or nonconforming products 19. 19create and delineate retailers image among its public.Direct communication does not only imply preservation of relationships withexisting customers, but also the contact and winning of new ones with the aim of binding them to the retailer. Direct communication includes mailing of brochures, prospects or catalogs, telephone or e-mail marketing. The basis fordirect communication is represented by the existence of databases with information on customers the so-called Database Marketing.Fairs and exhibitions are essential instruments for retail as well because they facilitate in an organized environment the exchange of merchandise (goods and services) among producers, distributors and consumers, representing thus ancillary instruments of retail. Retailers may organize universal fairs (includes industrial, manufacturer or agricultural exhibitors), sample fairs (where contracts are signed based on samples, while products are later remitted by the producer) or exhibitions (present a representative offer for a certainfield of activity and informs upon sales promotions). Among communicationinstruments, the most modern ones are ambient media, ambush media, keyword advertising, viral effects or guerrilla marketing5. In-Store-ManagementIn-store management may either be included in the communication policy orpresented individually. It represents the equivalent of physical evidences from service marketing. Physical evidences in retail include the interior space of the store, the layout of shelves and gondolas, product merchandising and opening hours. Building and interior standardization, space and gondolas design,systematization of decorations, pleasant sound, adequate lighting, use of fine scents and warm colours contribute essentially not only to the creation of a pleasant shopping atmosphere, the conveyance of an exciting shopping experience and the formation of a safe and agreeable environment for shopping or recreation, but also to the crystallization of retailers image and location among its public, to the improvement in its efficiency and chances of rapid development and to the increase in customers preference towards the retailer. Ambiance policy contributes, definitely, through emotions conveyed, to retailers strategic differentiation.Provision of pleasant shopping atmosphere and experience seem to representthe most important goals of this policy because consumers satisfaction is usually related to superior turnover / sales area, increase in: number of visitors, impulsive acquisitions, time spent in the store, loyalty of consumers, accessibility of purchases, retailers image differentiation, consolidation of consumers preference for the store and optimization of consumers visits frequency.Transmission of shopping excitement, of new and pleasure is carried out by assortment, communication, and service and in-store management. Attractive packaging, unique design or billboards that stir consumers emotions in order 20. 20to increase sales represent subtle means of influence and reach of economic indicators. In-store management involves one or more of the following:- Division of store surface in areas for different activities: merchandise display, counselling (quiet space outside noisy area), circulation (stairs, aisles), the rest(cash registers, dressing rooms); Placement of gondolas and aisles in order to fluidize flow of customers; Logical organization of merchandise and articles on gondolas and shelves to maximize visibility, to facilitate access and to allow creation of synergies and positive effects; Presentation of articles according to their utility, satisfied need, source, level of gondolas; Use of personal service departments; Visual communication and its psychological effects: lighting of the sales area; mix of colors and their dynamic (yellow sympathy, joy; red stimulation; green silence; blue relaxation); use of decorations; Acoustic communication: background music; stores radio (for promotions, special offers and announcements); Use of smells (fresh bread), perfumes (combinations from drinks, detergents, fruits departments), breeze (in the dairy department) and temperature (cold in meat or fruits departments, warm in recreation areas); Competent, clean and informative design of the windows in order to convey pleasant feelings; Informative screens and kiosks, price checks, order terminals, stands for film developing, computers with internet access and with various software.In-store-layout may be regarded from consumers point of view, who expects to do the shopping within a reasonable time period, without having to search for a long period of time the goods they need. In the cases they want a great shopping experience, the ambience should be completely different from that of competitors, and it should excite and please customers, and be in accordance with their lifestyles.6. LocationJust like service or loyalty policy, location derives from physical evidences and from the integration of extern factor into service delivery. The store represents the place where consumers interrelate with the retailer. At the same time, location is a component of distribution policy, representing the geographic place where the retailer utilizes its resources in order to deliver the service to its customers.In most countries it may be noticed a change in time of retailers location. Thus, if initially retail was concentrated in the centre of localities and neighborhoods, later on peripheries have become more important. The reactivation of central areas within the cities has been possible thanks to the 21. 21concentration there of public and service companies. Lately we can talk about the repositioning of retail in shopping centers and areas.Retail location is primarily determined by their format. Proximity units, specialized stores and discounters can usually be found in dense traffic areas, close to residential areas or to public institutions (schools, hospitals, and banks), agencies and service companies. Supermarkets are also found in dense traffic or populated areas, but usually are accessible by car. Hypermarkets, cash & carry, do-it-yourself units are built at the periphery or outside localities, being accessible only by car or public means of transportation.Store locations selection depends on:- Distance to: households; format of competitors (hypermarkets for a supermarket); assortment of competitors (shopping centers, specialized stores);areas with dense traffic; Existing infrastructure (car access; public transportation; existence of other institutions in the area); Demographic factors (populations distribution by sex, age groups, income; density and volume of population; nationalities; number of mono-, bi- or multiparental families); Economic factors (population income; propensity to economize; purchasing power; propensity to consume; number of people that live in that area and that of the people that work there); Psychological and social factors (lifestyles; consume habits; frequency of acquisitions and their size; mentality); Intensity of competition in the area (number and size of retail units; their turnover; degree of competitors specialization; image and ancillary services provided); Objective evaluation (of location; expansion opportunities or of improving the location; value of the location; trade area); Costs determined by the location (supply and logistics costs; rents; repairs and maintenance; costs with energy; personnel costs; taxes and dues; necessity of parkings or passageways); Disturbing factors (legislation; noise, odors, climate).In choosing optimal location for a retail unit, economic theory offers several possible approaches, such as: the method of concentric circles around a potential location; the method of temporal distance (minutes by car or on foot, or kilometers); Reillys gravitational model and its developments in Huffs model; STORELOC model; Checklist model; regression models. 22. 227. Customer LoyaltyThe policy of customers loyalization, deducted from the integration of the external factor into the service delivered, reveals the present loyalization methods of stores. Loyal customers may through the combined interaction of the offered assortment, of private brands, of stores atmosphere, of the competent and friendly personnel, but also through the store itself and its location. Only to the extent the retailer will stir its customers interest through its entire service and will convince them of the increased value it can provide, it will succeed in attracting them. Fulfilling customers expectations and underlining the various forms of utility (functional deducted from the basic function of the articles; emotional positive feelings inculcated to the possessors; social prestige) can strengthen the business relationship, favoring repurchasing, increase of visit frequency and amount of money spent in the store, and, in the end customers loyalty towards the retailer.The starting point in creating loyalty is the satisfaction of consumers expectations. In fact, satisfaction can be considered a complex process of comparisons made by consumers at the time of acquisition and the desires related to this. Both the perception of purchase and the desires and expectations differ from one consumer to the other, being influenced by lifestyle, income, education and other socio-economic variables.If consumers expectations are exceeded, its satisfaction will be increased, with a positive impact on the sales: the clients return and recommend the store to their friends and acquaintances. Not being able to fulfill the expectations will have a negative, much stronger than in the first case, effect. The retailer will face complaints, legal actions and dissemination of negative information about its business. In order to satisfy its customers retailers must take into account the following three aspects Fundamental demands: customers expect the personnel to be friendly, eager to help and competent at all times. Not being able to fulfill these expectations will easily end the business relationship; Achieving satisfaction: customers expect that all products and brands are properly labeled, that all prices are correct and not too different from those of competitors. If customers find another retailer that offers the same products at much lower prices, they will feel betrayed. Good service also means short queues at the cash registers; Enthusiasm: customers will feel important if rewarded with presents or discounts, if they are the 100.000th, the 1.000.000th, etc. customers. Even though the satisfaction concept seems to be easy to be perceived, it describes a phenomenon that must not be overlooked. Satisfied customers will accept the retailer more easily and will visit it more often than those that are unsatisfied. Therefore, customers 23. 23satisfaction and loyalty are interconnected phenomena, and retailers must be aware of that. Loyalty programs are classified by the literature taking into account : Level of cooperation between the retailer and producer isolated loyalty programs (carried out by only one producer or retailer) versus collaboration loyalty programs (collaboration between several companies); Customers expected value loyalty programs that focus on one side on the functional or economic component, and, on the other side on the emotional, social or service component;Among the relationship marketing instruments the most representative are cards and clients clubs. They contribute, together with bonus points programs, complaints management, customers magazines and brochures to long-term relationship strengthening. Clients cards, first introduced at the beginning of the last century in the US and only in the 50s in Europe have five functions: identify its possessor; remind of the retailer; prestige (sense of belonging) the possessor can identify with a group of people; finance the possessor enjoys several facilities; marketing the card can offer several ancillary advantages (free parking, etc.). Card holders earn points proportional with the amount of money spent or as a percentage of the total value of acquisitions, as a progressive accumulation or in stages.Market and customers concentration, together with the necessity of reciprocal exchange of information with the goal of approaching a large number of customers has made possible the foundation of partnerships between retailers and of associations. Thus, acquisitions made at any of the partners will generate points that are cumulated on one card, and which can be spent at any of them. According to recent studies, the launch of a loyalty program by a retailer using cards is viable if there are at least eight locations of the store.Another trend in loyalty programs is that of co-branded debit and credit cards (partnership with a bank or credit cooperative). In the context of the financial crisis, the profitability and efficiency of this initiative is more carefully analyzed, considering the credit conditions, interest rates and consumers ability of reimbursement.Clients clubs are utilized by retailers in order to bind clients tighter to the company. They represent associations sustained, initiated and organized by one or more enterprises, offering its members several, supplementary advantages.Complaints management, as an ancillary service of the retailer, provides it the opportunity to improve its operations and to implement its general strategy. Correctly processed, the ideas, observations and suggestions from the 24. 24customers can contribute not only to improve units image among its target market, but also to increase satisfaction and trust and to positively influence their loyalty. Other instruments that create loyalty among consumers and that can be used by retailers are: direct marketing, discount coupons and several computer programs that can predict consumers demands or optimize clients management depending on their acquisitions. 25. 253.1 Retail in India - The Past, Present and FutureBefore the decade of eighties, India with hundreds of towns and cities was a nation striving for development. The evolution was being witnessed at various levels and the people of India were learning to play different roles as businessmen and consumers.Retail-which literally means to put on the market, is a very important aspect of every city. Without a well-organized retail industry we would not have our necessities and luxuries fulfilled. Be it our daily groceries or fashion accessories and everything in between, retail industry brings us the blissful experience of shopping.Figure 3.1.1Factors affecting Retail in IndiaThough organized retailing industry began much earlier in the developed nations, India had not actively participated. However with its vast expanse and young population, India in the 21st century emerges as a highly potential retail market. The journey of retailing in India has been riveting and the future promises further growth. Here is a complete picture deciphering the past, present and future trends of Indian Retail Market.Retail in India - PastBefore the decade of eighties, India with hundreds of towns and cities was a nation striving for development. The evolution was being witnessed at various levels and the people of the nation were learning to play different roles as businessmen and consumers. The foundation for a strong economy were being laid, youth were beckoning new awareness in all spheres. And this brought inChapter 3: Retail in India 26. 26an opportunity for retail industry to flourish. First in the metros and major cities later to impact sub urban and rural market as well.Retailing in India at this stage was completely unorganized and it thrived as separate entities operated by small and medium entrepreneurs in their own territories. There was lack of international exposure and only a few Indian companies explored the retail platform on a larger scale. From overseas only companies like Levi's, Pepe, Marks and Spencer etc. had entered targeting upper middle and rich classes of Indians. However as more than 50 % population was formed by lower and lower middle class people, the market was not completely captured. This was later realized by brands like Big Bazaar and Pantaloons who made their products and services accessible to all classes of people and today the success of these brands proves the potential of Indian retail market.A great shift that ushered in the Indian Retail Revolution was the eruption of Malls across all regional markets. Now at its peak, the mall culture actually brought in the organized format for Retailing in India which was absent earlier. Though malls were also initially planned for the higher strata, they successfully adapted to cater to the larger population of India. And it no wonder, today Malls are changing the way common Indians have their shopping experience. However there is still great scope for enhancing Indian mall culture as other than ambience and branding many other aspects of Retail Service remains to be developed on international standards.To your surprise there was not a single mall in India a decade before and just a few years ago only a handful of them were striving, today there are more than 50 malls across different cities and 2 years from now around 500 malls are predicted to come up.Indeed this shows a very promising trend ahead, however before taking a leap into the future of Retail in India, let's see what the Indian retail Industry is currently occupied with.Retail in India - PresentAt present the Retail industry in India is accelerating. Though India is still not at an equal pace with other Asian counterparts, Indian is geared to become a major player in the Retail Market. The fact that most of the developed nations are saturated and the developing ones still not prepared, India secures a great position in the international market. Also with a highly diverse demography, India provides immense scope for companies brining in different products targeting different consumers.The Indian retail sector is highly fragmented with about 15 million retailers. Out of the large number of total retail outlets in the country, majority of them relate 27. 27to the food items. Since 1990s, big industrial houses like Rahejas, Piramals, Tatas, etc have started entering the retail industry. Besides, several Indian and foreign companies have been franchising for establishing exclusive outlets for their brands, both within the country and overseas. For instance, 'Bharati Group' had entered into a joint venture with the world's largest retail chain the 'Wal-Mart'.As a result, the Indian retail sector has been undergoing a rapid transformation in the past few years. The traditional formats of kirana stores, hawkers, grocers, etc are being gradually taken over by the modern formats of department stores, discount stores, malls, supermarkets, convenience stores, fast food outlets, specialty stores, warehouse retailers, hypermarkets, etc. For example, Pantaloon started the 'Big Bazaar' discount stores in 2002; Reliance opened its first supermarket named 'Reliance Fresh' outlet in Hyderabad and has since fanned out to several States; Subhiksha outlets have been fast spreading across the nation; etc. Thus, the current face of Indian retail comprising the unorganised small and medium retailers is slowly changing into a more organised form of retailing.According to the Global Retail Development Index, India is positioned as the foremost destination for Retail investment and business development. The factor that is presently playing a significant role here is the fact that a large section of Indian population is in the age group of 20-34 with a considerably high purchasing power; this has caused the increase in the demand in the urban market resulting in consistent growth in the Retail business.And though the metros and other tier 1 cities continue to sustain Retail growth, the buzz has now shifted from these great cities to lesser known ones. As the spending power is no longer limited to metros, every tier 2 city in the country has good market for almost every product or service. Due to this, tier 2 cities like Chandigarh, Coimbatore, Pune, Kolkatta, Ahmedabad, Baroda, Hyderabad, Cochin, Nagpur, Indore, Trivandrum etc. provide a good platform for a brand to enter Indian market.However there are a few precautions for every brand that explores Indian market. As Indian consumers are very curious and have a broad perspective, they respond well to a new product or concept and there are very fair chances of a brand surviving well, but every Indian consumer be it an urbanite or a small town dweller needs a feeling of value for money. Although labeled as tight fisted, Indian consumers are great spenders once they realize that they are getting value for their money. Also new product /service concepts from the western world are better adopted first by the urban Indians, the smaller markets respond well to the need based retailing rather than luxury concepts. 28. 28As the Indian retailing is getting more and more organized various retail formats are emerging to capture the potential of the market. Mega Malls Multiplexes Large and small supermarkets HypermarketsDepartmental stores are a few formats which flourishing in the both big and small regional marketsAs the major cities have made the present retail scenario pleasant, the future of the Indian Retailing industry lies in the rural regions. Catering to these consumers will bring tremendous business to brands from every sector. However as the market expands companies entering India will have to be more cautious with their strategic plans. To tap into the psyche of consumers with different likes and dislikes and differing budgets a company has to be well prepared and highly flexible with their product and services. In this regard focusing on developing each market separately can save a brand from many troubles.Retail in India - The FutureAccording to a study the size of the Indian Retail market is currently estimated at Rs. 704 crores which accounts for a meagre 3 % of the total retail market. As the market becomes more and more organized the Indian retail industry will gain greater worth. The Retail sector in the small towns and cities will increase by 50 to 60 % pertaining to easy and inexpensive availability of land and demand among consumers.Growth in India Real estate sector is also complementing the Retail sector and thus it becomes a strong feature for the future trend. Over a period of next 4 years there will be a retail space demand of 40 million sq. ft. However with growing real estate sector space constraint will not be there to meet this demand. The growth in the retail sector is also caused by the development of retail specific properties like malls and multiplexes.According to a report, from the year 2010 to 2012 the retail sales are growing at a rate of 8.3% per annum. With this the organized retail which currently has only 5% of the total market share will acquire 15-20 % of the market share by the year 2014. 29. 29Factors that are playing a role in fuelling the bright future of the Indian Retail are as follows: The income of an average Indian is increasing and thus there is a proportional increase in the purchasing power. The infrastructure is improving greatly in all regions is benefiting the market. Indian economy and its policies are also becoming more and more liberal making way for a wide range of companies to enter Indian market. Indian population has learnt to become a good consumer and all national and international brands are benefiting with this new awareness. Another great factor is the internet revolution, which is allowing foreign brands to understand Indian consumers and influence them before entering the market. Due to the reach of media in the remotest of the markets, consumers are now aware of the global products and it helps brands to build themselves faster in a new regionHowever despite these factors contributing to the growth of Indian retail Industry, there are a few challenges that the industry faces which need to be dealt with in order to realize the complete scope of growth in Indian market.Foreign direct investment is allowed only 51% in retail sector, which can be a concern for many brands. But Franchise agreements circumvent this problem. Along with this regulations and local laws and real estate purchase restrictions bring up challenges. Other than this lack of integrated supply chain and management and lack of trained workforce and flux of the market in terms of price and product choice also need to be eliminated.Despite these challenges many international brands are thriving in the Indian market by finding solutions around these challenges. A company that plans to enter Indian market at this time can definitely look forward to great business if it analyses and puts efforts on all parameters.Also, India is one of the most attractive markets for retail investment. Many national and global players have been investing in the retail segment and have ambitious plans for further expansion. The vast middle class with rising purchasing power are attracting global retail giants into the almost untapped retail industry. Some of the international players already present in the Indian market include fast food chains like McDonalds and Pizza Huts; Dominos; Levis; Lee; Nike; Adidas; Benetton; Sony; Sharp; Kodak; etc.The investment opportunities in the domestic retail industry lay in most of the product categories particularly, food and grocery (the largest category); home improvement and consumer durables; apparel and eating out; supply chain infrastructure (cold chain and logistics); etc. India also has significant potential 30. 30to emerge as a sourcing base for a wide variety of goods for international retail companies.And with Good Planning, Timely Implementation and a media campaign that touches Indian consumers any brand can go far ahead in the Indian Retail Revolution.Advantages of conventional and modern organised retail reforms:- Conventional Modern Organized Large Bargaining Power Low operating cost and overheads Proximity to consumers Range and variety of goods Long operating hours, strong customer relations, convenience and hygiene. Long operating hours, quality assurance (brand related and durability). 31. 314.1 Indian Retail: FDI -The ImplicationsIndian retail industry is one of the sunrise sectors with huge growth potential. According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015. However, in spite of the recent developments in retailing and its immense contribution to the economy, retailing continues to be the least evolved industries and the growth of organised retailing in India has been much slower as compared to rest of the world. Undoubtedly, this dismal situation of the retail sector, despite the on-going wave of incessant liberalization and globalization stems from the absence of an FDI encouraging policy in the Indian retail sector. Moreover, with the latest move of the government to allow FDI in the multiband retailing sector, we have analysed the effects of these changes on farmers and agri- food sector. The findings of the study point out that FDI in retail would undoubtedly enable India to integrate its economy with that of the global economy. Thus, as a matter of fact FDI in the buzzing Indian retail sector should not just be freely allowed but should be significantly encouraged.Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its GDP.The Indian retail market is estimated to be US$ 500 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion people.As of 2013, India's retailing industry was essentially owner manned small shops. In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centres. India's retail and logistics industry employs about 40 million Indians (3.3% of Indian population).Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic process.In November 2011, India's central government announced retail reforms for both multi-brand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such as Walmart, Carrefour and Tesco, as well single brand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism, both in opposition and in support of the reforms. In December 2011, under pressure from the opposition, Indian government placed the retail reforms on hold till it reaches a consensus.Chapter 4: FDI in Retail 32. 32In January 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but imposed the requirement that the single brand retailer source 30 percent of its goods from India. Indian government continues the hold on retail reforms for multi-brand stores.In June 2012, IKEA announced it had applied for permission to invest $1.9 billion in India and set up 25 retail stores. An analyst from Fitch Group stated that the 30 percent requirement was likely to significantly delay if not prevent most single brand majors from Europe, USA and Japan from opening stores and creating associated jobs in India.On 14 September 2012, the government of India announced the opening of FDI in multi-brand retail, subject to approvals by individual states. This decision was welcomed by economists and the markets, but caused protests and an upheaval in India's central government's political coalition structure. On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi-brand retail, thereby making it effective under Indian law.On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand retail in India. The government managed to get the approval of multi-brand retail in the parliament despite heavy uproar from the opposition (the NDA and leftist parties). Some states will allow foreign supermarkets like Walmart, Tesco and Carrefour to open while other states will not.Most Countries of the World which embarked on the road to economic development had to depend on foreign capital to some extent. But until the early 1990s Indias approach towards foreign capital as an instrument of growth and development in an overall sense was rigid, restrictive and selective. Things, however, changed with the Industrial Policy 1991.Coming on the heels of the macro economic and balance of payment crisis of late 1980s, it ushered in a paradigm shift in the Indian economy and over bent to cajole foreign capital to come to India. The beginning made by the Industrial Policy 1991 in the direction of inviting foreign capital has increasingly been gaining momentum with new sectors being made eligible, with almost each subsequent year, for foreign capital.4.2 Foreign Direct Investment (FDI) in IndiaThe most important channel through which foreign capital flows into the country is Foreign Direct Investment (FDI). FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. International Monetary Organization (IMF) and Organization for Economic Cooperation and Development (OECD) define FDI as a category of cross border investment made by a resident in one economy 33. 33(the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor. The motive of the direct investor is a strategic long term relationship with the direct investment enterprise to ensure significant degree of influence in the management of the direct investment enterprise .Besides, International Bank for Reconstruction and Development (IBRD) and United Nations Conference on Trade and Development (UNCTAD) also provide definition of Foreign Direct Investment. To put in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. It is preferred over other source of foreign capital because it is non-volatile, non-debt creating and results in economic development, modernization and employment generation in the economy.Foreign Direct Investment under the Industrial Policy 1991 and thereafter under different Foreign Trade Policies is being allowed in different sectors of the economy in different proportion under either the Government route or Automatic Route. In Retailing, presently 51 per cent FDI is allowed in single brand retail through the Government Approval route while 100 per cent FDI is allowed in the cash-and-carry (wholesale) formats under the Automatic route. Under the Government Approval route, proposal for FDI in Single Brand Product Retailing are received in the Department of Industrial Policy and Promotion, Ministry of Commerce & Industry. Automatic route dispenses with the need of multiple approvals from Government and/or regulatory agencies (Government of India or the RBI). Investors are required only to notify the concerned Regional offices of RBI within 30 days of receipt of inward remittances and file required documents with that office within 30 days of the issue of shares to foreign investors.The legal regimes that controls FDI in India and to that extent FDI in retailing includes Press Notes by Department of Industrial Policy and Promotion, Foreign Exchange Management Act 1999, Guidelines of Reserve Bank of India(RBI) and Security and Exchange Board of India, besides, of course, the Constitution of India.Indias large and ever growing population coupled with a paucity of profitable economic opportunities make labor intensive activities like Agriculture and Retailing a major source of subsistence for the teeming millions especially the poor unskilled labor, superfluous labor and the educated unemployed. Therefore, any change that tend to disturb the existing configuration of these two sectors have a bearing on the lives of millions of these people and raises sharp public outcry and to that extent FDI in Agriculture and Retailing has always been a contentious issue. Of late, the Government of India has expressed its desire to bring the Multi-Brand retailing within the ambit of FDI, and in the process has put in train a debate on its possible outcome. This short 34. 34paper proposes to examine the conflicting viewpoints of this debate so as to arrive at a balanced conclusion.Retailing in India as also elsewhere in the world is divided into organized and unorganized retailing. Organized retailing refers to trade activities undertaken by the licensed retailers i.e., those who are registered for sales tax, income tax etc. These include the corporate backed hypermarket, retail chains and also the privately owned large retail business. Unorganized retailing, on the other hand, refers to traditional format of low cost retailing, for example the corner store (kirana i.e. grocery shops),owner manned general stores, Cigarette shops, convenience store, hand cart, pavement vendor etc. Unorganized retailing is the most prolific and visible form of retailing in India while the organized retailing constitutes only a very small percentage (4-5%). The reasons as to why Indian retailing is so fragmented or unorganized in nature lies in her entrenched poverty and the fact that a large number of educated unemployed and superfluous labor takes refuge in retailing in the face of joblessness and glaring poverty. Retailing in unorganized sector is thus not a profit oriented vocation but a mere source of livelihood. Naturally, the capital investment is very low and the infrastructure is rudimentary. It is estimated that less than 4% of Indian retailers have shops larger than 500 square feet. Given this rickety state of Indian unorganized retailing, there are serious apprehensions that the flow of organized foreign capital with its associated baggage of humungous infrastructure, bulging financial power professional managerial staffs etc, would sound the death knell for the Indian retailing industry. As against most Indian retailers less than 500 square feet premises, the average size of a store of Wall-mart (American Retailing Giant) is 85000 square feet and has an average annual turnover of $51 million as opposed to an average Indian retailers paltry turnover of Rs.186, 000. Further, it is feared that the international retailing giants will resort to predatory pricing to acquire monopolies. These retailing giants with their sprawling business cutting across different continents and deep pockets will be able to sustain loss till their competitors are wiped out.As has been mentioned earlier retailing disguises the abysmal nature of unemployment in the country. Indian agriculture has long been a source of livelihood for the teeming millions of the country (provides employment to more than 50% of Indias labor force) so much so that it is massively over-crowded now. Besides, during the lean season even the productive farmers find themselves unemployed. Although the manufacturing is a labor absorbing sector, its true potential has not been harnessed as yet and it has been stagnating since the tenth five year plan. Retailing helps in absorbing these shocks providing safety-net and opportunities to the superfluous labor to eke out a living where all other sectors have not been able to. Critics fear that the inflow of FDI in retailing will restrict the labor absorbing capacity of the retailing 35. 35sector since the international retailing giants employ labor saving machinery and knowhow both to add value to their service as well as to enhance their profit. And given the fact that the manufacturing is not in a vibrating state to absorb those who are displaced from the retailing by the advent of FDI, the poor and the unemployed will find the going very difficult for them. There will be a hike in the rate of both unemployment and underemployment.It has also been said that the domestic organized retailing is underdeveloped and in a nascent stage. Therefore, it is important that the domestic retailing sector is allowed to grow and consolidate first before the sector is opened to FDI. FDI in retailing may also widen the rural -urban divide in the sense that most of the retailing centers would be set up in the cities where both the density of population and level of income of the people are high. These retail centers would also attract cheap labor from the rural areas and thereby deplete the hinterland of its workforce. In addition, organized retailing with FDI would result in bevy of buildings and multiplexes. Unless their constructions are regulated, they will also add to the chaotic muddle of urbanscape.After having expatiated on the possible pitfalls of allowing FDI in retailing, it is also necessary to understand the distinction between appearance and reality. Much of the prognostication of gloom is based on a theoretical understanding of the situation. In reality, the research conducted by the Indian Council for Research on International Economic Relations (ICRIER) has revealed that there is no evidence of overall decline in the employment of the Unorganized retailing sector as a result of the advent of FDI in organized retailing and that the rate of closure of small shops for the same reason is very minimal.One needs to be holistic in his assessment of the outcome of introducing FDI in Retailing. One of the reasons as to why a vast swath of Indias population is suffering poverty and depravation is that Agricultural sector of the country has not developed appropriately, and the main stumbling block in this regard has been that of inadequate logistics and direct access for farmers to vast markets. FDI in retailing can to a large extent ameliorate these deficiencies. If FDI in front end retailing is allowed, the international retailing giants will be motivated to invest capital, bring in knowhow and global capacity on a colossal scale and as a result a world class back end infrastructure would be built the like of which may take the government years to make (Though FDI is permitted in backend infrastructure to the extent of 100% through the automatic route, in the absence of FDI in retailing, investment in backend infrastructure has not been so forthcoming) . The foremost beneficiary of such a development would be the farmers, especially those engaged in Horticulture. Though India is the second largest producer of fruits and vegetables, lack of storage facilities cause heavy losses to farmers. Availability of adequate post harvest and cold chain infrastructure would enable the farmers to avoid wastage and distress sales. The retailers would engage the farmers directly through the contract 36. 36farming programmes as also resort to direct buying from the farmers which will dilute the role of profit siphoning intermediaries, enhance the income of the farmers and give them direct access to markets. The resultant rural prosperity may open up market for other industrial goods and help bring about a more balanced regional development.The Medium and Small Enterprise that plays a critical role in countrys overall manufacturing scenario has lagged and suffered due to lack of branding and avenues to reach out to the vast world market. The international retailers can buy from them not only for the domestic market but for their stores outside the country also and in the process provide the small and medium enterprises of the country a brand name and a window to the international market. In fact, it is estimated that FDI in retailing can significantly increase export from the country. If the domestic organized retailers are allowed to grow to the exclusion of FDI, it may bring about other above mentioned developments but not increase the exports.FDI can, in fact, spur competition among the organized retailers. The ultimate beneficiary of these competitions would be the consumers. An example of how the consumer benefit from the competition is the automobile industry in India. The intense competition among the automobile industries has resulted in a situation where the consumer has been able to purchase cars for as low a price as rupees one lakh. CRIER in its research has found that all income groups save through organized retail purchase, but the lower income groups save more. Thus, organized retail is relatively more beneficial to the less well-off consumers.A growing and mushrooming retail sector means that its contribution to GDP would grow. It would thus help in expanding the economy, generate employment and result in more tax income.In the light of all that have been discussed above it can be said without any dispute that the time for allowing FDI in Multi Brand Retailing has come and as Victor Hugo has said Nothing can stop an idea whose time has come. FDI in Retailing started with FDI in cash and carry wholesale trading first permitted in 1997 to the extent of 100% under the Government approval route and thereafter in 2006 brought under the automatic route. In 2006 again FDI in Single Brand Retailing was permitted to the extent of 51%. From here it is but natural and logical that FDI would now proliferate to multi-brand retailing. But the progression to FDI in multi-brand retailing cannot take place at the cost of vital concerns raised in connection with this possible change by different groups; viz, the question of adaptability of the retailers in the unorganized sector, the question as to how the FDI in retailing can be harnessed for the benefits of Indian agriculture and Medium and Small Enterprise and above all how to impart into the economy a degree of resilience to withstand the changes that would be ushered in the wake of introduction of FDI in retailing. All these concerns have to be addressed not because the Left wing political 37. 37parties and the media through their campaign have necessitated such attention but because we are constitutionally bound to do so .The Preamble of the Constitution resolves to constitute India into a Sovereign, Socialist, Secular, Democratic, Republic and to secure to all its citizens JUSTICE, social, economic and political. EQUALITY of status and opportunity. Directive Principles of State Policy similarly exhorts the state to establish just, equitable and fair order. Article 39(c) states that the state should ensure that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. Though both these features are not enforceable, the Executive and the Apex Court in particular have time and again reiterated the sacrosanct nature of these features [ Kesavananda Bharti v.State of Kerala AIR 1973 SC1461,1973(4) SCC225; Minerva Mills v. Union of India 1980 AIR 1789,1981 SCR(1) 2061]Unlike FDI in single brand retailing which pertains to brand loyal and a relatively small high income clientele, FDI in multi-brand retailing would have direct impact on a vast spectrum of population and thus a sensitive issue. Left alone foreign capital will seek ways through which it can only multiply itself, and unthinking application of capital for profit, given our peculiar socio- economic conditions, may spell doom and deepen the hiatus between the rich and the poor. Thus the proliferation of foreign capital into multi-brand retailing needs to be anchored in such a way that it results in a win-win situation for India. This can be done by integrating into the rules and regulations for FDI in multi-brand retailing certain inbuilt safety valves. For example FDI in multi brand retailing can be allowed in a calibrated manner with social safeguards so that the effect of possible labor dislocation can be analyzed and policy fine tuned accordingly. To ensure that the foreign investors make a genuine contribution to the development of infrastructure and logistics, it can be stipulated that a percentage of FDI should be spent towards building up of back end infrastructure, logistics or agro processing units. One of the justifications for introducing FDI in multi-brand retailing is to transform the poverty stricken and stagnating rural sphere into a forward moving and prosperous rural sphere. To actualize this goal it can be stipulated that at least 50% of the jobs in the retail outlet should be reserved for rural youth and that a certain amount of farm produce be procured from the poor farmers. Similarly to develop our small and medium enterprise, it can also be stipulated that a minimum percentage of manufactured products be sourced from the SME sector in India. Public Distribution System is still in many ways the life line of the people living below the poverty line. To ensure that the system is not weakened the government may reserve the right to procure a certain amount of food grains for replenishing the buffer. The government may also put in place an exclusive regulatory framework to protect the interest of small retailers. It will ensure that the retailing giants do resort to predatory pricing or acquire monopolistic tendencies. Besides, the government and RBI need to evolve 38. 38suitable policies to enable the retailers in the unorganized sector to expand and improve their efficienciesThe Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian economy at one point of time or the other would be embraced by liberalization, privatization and globalization. FDI in multi-brand retailing is in that sense a steady progression of that trajectory. But the government has by far cushioned the adverse impact of the change that has ensued in the wake of the implementation of Industrial Policy 1991 through safety nets and social safeguards. But the change that the movement of retailing sector into the FDI regime would bring about will require more involved and informed support from the government. One hopes that the government would stand up to its responsibility, because what is at stake is the stability of the vital pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio economic equilibrium of the entire country.All Indian households have traditionally enjoyed the convenience of calling up the corner grocery "kirana" store, which is all too familiar with their brand preferences, offers credit, and applies flexible conditions for product returns and exchange. And while mall based shopping formats are gaining popularity in most cities today, the price-sensitive Indian shopper has reached out to stores such as Big Bazaar mainly for the steep discounts and bulk prices. Retail chains such as Reliance Fresh and More have reportedly closed down operations in some of their locations, because after the initial novelty faded off, most shoppers preferred the convenience and access offered by the local kirana store.So how would these Western multi-brand stores such as Wal-Mart and Carrefour strategies their entry into the country and gain access to the average Indian household? Wal-Mart has already entered the market through its partnership with Bharti, and gained opportunity for some early observations. The company's entry into China will also have brought some understanding on catering to a large, diverse market, and perspectives on buying behaviour in Asian households. Carrefour on the other hand has launched its wholesale cash and carry operations in the country for professional businesses and retailers, and will now need to focus more on understanding the individual Indian customer.As such, these retail giants will try to gain from some quick wins while reaching out to the Indian consumer. For one, they will effectively harness their expertise with cold storage technologies to lure customers with fresh and exotic vegetables, fruits and organic produce. Secondly, they will also emphasise on the access that they can create for a range of inspirational global foods and household brands. Thirdly, by supporting domestic farmers will try ensuring supplies of essential raw materials to them. 39. 39Surely, these should engage shoppers' and farmers interestbut what needs to be seen is whether they can effectively combine these benefits, with the familiarity, convenience and personalised shopping experiences that the local "kirana" stores have always offered.1: What will FDI do?Without doubt, it will immediately save the indigenous modern retail industry that has been built until now. What has been b


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