Electronic copy available at: http://ssrn.com/abstract=1435218Electronic copy available at: http://ssrn.com/abstract=1435218

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A STUDY ON THE CHALLENGES AND OPPORTUNITIES FACED BY ORGANIZED RETAIL PLAYERS IN BANGALORE

MIHIR DASH1 SAM CHANDY

ABSTRACT

Even though Indian retailing is hailed as a huge sector in India, in reality, it is not so rosy when compared to the retail scenario in developed and other developing countries. Indian retail is still in the infancy stage, with the retail revolution gaining momentum in India only in the late 1990’s, and there are a number of challenge factors which need to be overcome and a number of opportunity factors which need to be leveraged upon, if organized retailing is to flourish the way it ideally should.

This study revolves around the opportunities and challenges faced by organized retail players in Bangalore. It was found that organized retailers see competition from the unorganized sector as their biggest challenge, followed by competition between organized retailers and the inefficiency of distribution channels, internal logistical problem and retail shrinkage, while unorganized retailers see organized retailing as their major challenge, followed by cost of operation, logistical problem, competition between other kirana retailers and inefficient distribution channels. It was also found that organized retailers see Bangalore’s growing middle class as their greatest opportunity followed by large number of earning youth customers, Bangalore having people from all over India, proportionate increase in spending with earnings and India’s booming economy, while the kirana retailers see Bangalore having people from all over India as their biggest opportunity, followed by Bangalore’s growing middle class, India’s booming economy, large number of educational institutions in Bangalore and proportionate increase in spending with earnings. Thus, the study found that the major challenges as well as opportunities of organized and unorganized retail are almost the same. This means that mitigating the challenges and leveraging on the opportunities could benefit both sectors. Keywords: retailing, organized and unorganized retailing INTRODUCTION:

Already known as the sunshine sector in India, retail is all set to make tremendous growth. The retail sector in India can be broadly classified into the organized and the unorganized retail sectors. The unorganized retail sector typically consists of small-time family-run retail outlets popularly known as ‘mom and pop’ stores or kirana stores. The organized retail sector typically consists of large retailers with large numbers of outlets, product assortment, customer convenience, and so on.

The organized retail industry in India is estimated to be an impressive US $360 billion as on March 2008. Retailing as a whole contributes almost 10% of India’s GDP, and employs almost 8% of India’s employable population. However, the retail market in India is the most fragmented in the world, as indicated in the 2007 CRISIL report. Only 5% of the entire retailing business in India is in the organized sector, and this share is expected to grow to 15-20% over the

                                                            1 The first author is a senior faculty at Alliance Business Academy, 19th Cross, 7th Main, BTM Layout, II Stage, Bangalore-560076, and can be contacted by phone on +91-9945182465, or by email at mihirda@rediffmail.com. The other author is a research scholar at the same institution. 

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next decade. However, this growth may be impossible without overcoming the numerous challenges faced by the industry.

Organized retail is in the stages of finding its feet in India even now. Organized retail trade makes up over 70-80% of total trade in developed economies. India’s retail contribution is quite low even when compared to other developing Asian economies like China, Thailand, South Korea and Philippines, all of which have retail contributions close to 20-35%. These figures quite clearly reveal the relative underdevelopment of the Indian organized retail sector.

Figure 1: Figure showing the beginning of organized retailing in countries across the globe

Source: Euromonitor, AT Kearney

Figure 1 shows the timeline of the emergence of organized retailing in countries across

the world. Indian and Chinese markets are comparable in many aspects; both countries are composed of many markets within a single country with significantly varying cultures and customer preference across regions. There is a significant rural population in both countries with much lower purchasing power as compared to their urban counterparts. Both countries are very large geographically thereby adding the distribution and logistics dimension to trade. Lastly, consumers in both countries are highly value conscious. Even with these similarities, over a period of seven years, when the share of organized retailing had grown from 10% to 20% (from 1996 to 2003) in China, while in India it was 1.7% in 1995, growing to only 5% in 2008.2 Another comparison can be made with Brazil where organized retailing has grown from 10% to 40% over the same period. All these factors emphasize on the fact that organized retailing will grow only if specific challenges which pull India behind other countries are overcome and similarly, specific opportunities tapped.

The growth of the Indian organized retail sector definitely calls for efficiency in logistics and improved adoption of technology for various activities from understanding customer preferences, to the management of supply chain. Likewise, there are many challenge and opportunity factors which need to be addressed in order to ensure vibrant growth for this sector. LITERATURE REVIEW: Challenges faced by Organized Retail Sector in India

The organized retail sector in India is still at a developmental stage, characterized by a very small number of players trying to create a new paradigm. To become a flourishing industry, the Indian retail sector has to attract leading Indian and foreign players to make substantial investments. In addition to this, a number of challenges which organized retailing faces are identified.3                                                             2 TATA Strategic Management Group Review - June 2006 3 http://www.naukrihub.com/india/retail/overview/challenges/  

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Technology is one of the major challenges faced by organized retailers; specifically, the availability, feasibility, and adoption of technology. Customer-centric retailers worldwide are increasingly banking on technology to gain an advantage in the marketplace. Technology is already being widely used for a host of activities including theft prevention, logistics, billing & payment. The scope of technology is wider that all this and can be used for other functions like understanding customer preference using RFID, keeping track of customers using CRM packages, enterprise management tools (ERP), and so on.

Another challenge is that of government opposition to FDI in organized retail. Retail in India is one of the few sectors which still has restrictions on FDI. Given the current trend in liberalization, it will not be long before the retailing sector is also thrown open to international competition. This will see a further segregation of the international retailing brands and the domestic retailers, thereby injecting much greater dynamism into the market. FDI allows foreign retailers to operate in India. This would bring along competition and ultimately driving down the prices, thus making the economy stronger.

Internal logistical problems pose another major challenge for organized retail. In some cases, the manufacturer directly supplies the products at the sales outlets. But in some cases where such an arrangement is not possible, internal logistics takes care of these operations. Here, the goods are supplied by the product manufacturer to one main nodal zone warehouse from where the company employs its own transportation facility or that of a goods transportation contractor to get the goods to the sales outlets. In such a case, the transportation cost is an additional overhead. Also, developing such a system by the company could prove very costly. Contracting the work to a contractor is an easy way out, but then again, the quality of contractors and their dedication is another question which needs to be taken care of.

Another challenge facing organized retailing in India is the availability of skilled workforce. The talent base is limited, and with the entry of big giants there is a struggle amongst them to retain this talent. Areas such as technology, supply chain, distribution, logistics, marketing, product development and research are becoming very critical for the success of the organizations. All of these would lead to the recruitment of highly professional people who specialize in these fields. This has resulted in big salary hikes at the level of upper and middle management and thereby eroding the profit margin of the business. Shortage of manpower exists even at the lower levels.

Retail shrinkage is another major concern for organized retail. Retail shrinkage is the difference in the value of stock as per the books and the actual stock available in the shop. The causes of retail shrinkage are mainly employee theft, shoplifting, administrative errors and vendor fraud.

Another challenge is that of understanding customers (in terms of customer behavior and loyalty). A number of factors play a part in influencing the loyalty and the commitment of customers, such as quality and value of core offering, levels of customer satisfaction etc. Profits increase by decreasing the rate at which customers defect. By retaining just 5% more of its customers, it was proved in a report how a company could almost double its profits. Furthermore, in a period of only five years, a firm with a 70% customer retention rate will have lost two to three times as many customers as a firm with a 90% retention rate. It pays to engender loyalty.

Ever-increasing customer demand also poses a major challenge to organized retail. Globalization has brought about a change in the Indian consumerism psyche with the consumer becoming more aware of his/her value of money strength and their economic purchasing power becoming more evident than in the previous generations. The concept of product quality and service delivery which were earlier not very engraved in the consumer psyche are now very

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much demanded and delivered for in the new age format of organized product retailing in the Indian consumer goods market. People increasingly want more and more for less.

Another challenge is that of inefficient distribution channels. Distribution is an integral part of any retail organization. Delivering the right goods to the right place at the right time is main task of distribution. Retail majors are under serious pressure to improve their supply chain systems and distribution channels and reach the levels of quality and service desired by customers. The lack of proper infrastructure and distribution channels in the country results in inefficient processes.

Another challenge is that of losses due to lack of infrastructure (roads, traffic, airport, railways, ports, and so on). Infrastructure in retail refers to proper pliable roads, airports and railway stations capable of handling large consignments on a daily basis, proper warehouses, cold storage systems, roads with less traffic, proper connectivity etc. The infrastructure for easy transportation of goods is not adequate in the country. Also, the fall in agricultural output continues to cast on FMCG sector's prospects in the short term. Right now, there is a tremendous amount of wastage and value loss of agricultural products due to lack of storage, refrigeration, transportation and processing facilities.

Another challenge is that of power supply. Organized retail outlets use very large volumes of electricity for a variety of applications from lighting, air conditioning, escalators, cold storing, billing systems, lifts etc. In fact, retailing in an organized retail outlet would be lifeless if not for availability of power. Added to this, the extreme power supply crisis in Bangalore would give nightmares to any retailer. These customer convenience systems need to be kept running even in the event of power failures in order to ensure a good shopping experience for the customer. As a result of insufficient and inefficient power supply, a huge amount of private investment goes into ensuring power backups. Moreover tariff for consumption of power for the retail sector is at a much higher rate than even the manufacturing sector in India, leading to escalation in costs of development and maintenance. This makes it very difficult for organized retail to grow.

Another challenge comes from land & rental rates. The single-largest factor hampering retailers in India is the cost of quality real estate. As location is the king in retail, the increasing cost of real estate has become a concern for retailers who operate on very low margins. The present scenario of the industry is focused on forward buying of retail real estate in order to reap balance sheet advantages later in the business cycle. Another problem is confirming with regulations restricting real estate purchase and cumbersome local laws. Mall developers too have their side of the escalating cost story. They are forced to pass on the high costs to tenants as construction and maintenance costs have gone up manifold in the past few years.

Competition from unorganized sector is another challenge facing the organized retail industry in India is competition from the unorganized sector. Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labor costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. In addition to that, the unorganized sector has transformed itself with the advent of organized retailing. It has become more customer friendly by offering credit, home deliveries, etc. It adds a personal touch to shopping that organized retailers may find impossible to emulate.

As more and more organized retail outlets are dotting the Indian topography, competition is no more restricted between organized and unorganized retailing. It is now quite evident between organized retailers as well. Loyalty programs, home delivery of goods, customer retention strategies, offers, discounts etc are the order of the day.

Competition is not just between organized and kirana outlets or within organized outlets. It is also seen between kirana outlets in the same locality. It is not as aggressive as the

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competition between organized retailers, but still it is very much visible. They mainly start by offering credit to regular customers who live close by; they also give free home delivery of goods over a telephonic order. They also start stocking a variety of products. Kirana shops selling general merchandise now selling vegetables as well is a typical example of this phenomenon.

Another challenge is that of cost of operation. Organized retailers in India cannot concentrate on their core competency alone like in many developed countries. They will need to manage everything from supply chain, logistics, selling, sourcing, stocking, merchandizing, trend analyzing etc. Players in the organized sector have big expenses to meet, and yet have to keep prices low enough to be able to compete with the traditional sector. This is a very huge challenge. High costs for the organized sector arises from: higher labour costs, social security to employees, high quality real estate, rentals, security, maintenance, much bigger premises, comfort facilities such as air-conditioning, back-up power supply, higher electricity tariffs, taxes etc. Organized retailing also has to cope with the middle class psychology that the bigger and brighter a sale outlet is, the more expensive it will be. Opportunities for the Organized Retail Sector in India

These are factors which are, to an extent, opportunities, and which have the potential to leave a positive impact on the retail landscape if effectively tapped.

India’s booming economy is a major source of opportunity. The economy of India, when measured in USD exchange-rate terms, is the fourth largest in the world, with a GDP of US $1.50 trillion (2008). It is the third largest in terms of purchasing power parity. India is the second fastest growing major economy in the world, with a GDP growth rate of 9.4% for the fiscal year 2006–2007. However, India's huge population has a per capita income of $4,542 at PPP and $1,089 in nominal terms (revised 2007 estimate). India’s booming economy is definitely one of the major growth factors for organized retailing in India.

High bargaining power with suppliers is another opportunity factor for retailing. Attractiveness of goods lie mainly in benefits derived and secondly in the prices. So price is a very important factor which needs to be taken into consideration. Large retailers operate on low margins and large volumes and the only method to bring about further low prices is by bargaining with the supplier for a better deal. Increased investments and the entry of big business houses in retailing is leading to the emergence of bigger retailers, who can both bargain with the suppliers, as well as, reap economies of scale. Hence, discounting is becoming an accepted practice.

In-house brands, also known as store brands, are products developed by a retailer and available for sale only from that retailer; some retailers may attempt to utilize this measure of exclusivity to differentiate them from the competition. Store brands help retailers to increase sales which indirectly add to the bottom line (profit). However store brands are priced 20-30% less than the branded goods. Store brands can used as a powerful tool i.e. The general feeling is that in times of recession, private labels increase their market share, and tend to maintain that market share as economies recover. Thus store brands prove to be a useful tool, depending upon how it is created. In-house brands in India are currently in a growing phase.

According to recent DSP Merrill Lynch report, the key factor providing a thrust to this retail boom is the changing age profile of spenders. A new set of young earners who are in their mid twenties has emerged and over seven million people are entering this category every year. India is a very young nation, if compared with some advanced and developed countries. Nearly two-thirds of its population is below the age of 35, and nearly 50 % is below 25. Marketers explain that the boom in the consumption level and leisure related expenditure is because of this young population. It will have a significant impact over the consumer goods market. In addition

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to that, it is expected that this will generate trade opportunities and continuous investment in the economy.

The proportionate increase in spending with earnings is another source of opportunity. Indians are traditionally savers, rather than spenders. This is slowly changing thanks to the hard-sell tactics adopted by the leading credit card companies. The number of households earning more than Rs. 150,000 per annum amounts to 80mn today and is expected to grow to 100mn by the end of 2008. With the total consumer spend touching Rs. 20,000 billion at current prices with retail at Rs. 10,500 billion (growing over 5% annually), organized retail at Rs. 360 billion (growing at over 30%) is expected to cross the RS. 1000 billion mark by 2015. Consumer spending is ultimately pushing the economy into a growth-and-liberalization mode. With the Indian economy now expected to grow at over 8% and with average salary hikes of about 15%, manufacturers and retailers of consumer goods and services can expect a major boost in consumption.

The increase in the trend of impulse buying is also a potential source of opportunity for organized retail. An impulse purchase or impulse buy is an unplanned purchase. The decision is taken only after seeing the merchandise. Impulse buying disrupts the normal decision making models in consumers' brains. The logical sequence of the consumers' actions is replaced with an irrational moment of self gratification. Impulse items appeal to the emotional side of consumers. Some items bought on impulse are not considered functional or necessary in the consumers' lives. Impulse buying, though is seen in all age groups, is more predominant in the younger generation.

The tremendous growth in recent years of metropolitan cities such as Bangalore is also a major source of opportunity. At the centre of India‘s booming economy are the top six cities of Mumbai, Delhi, Chennai, Kolkata, Bangalore and Hyderabad representing 6% of the population yet contributing 14% of the GDP. Also notable is the fact that 85% of India‘s urban Retail market is concentrated in the country‘s six large cities. In particular, Bangalore’s position as India’s major economic hub has consolidated over the years. Bangalore's Rs. 260,260 crore (US$ 60.5 billion) economy (2002–03 Net District Income) makes it a major economic centre in India. Bangalore is India's fourth largest FMCG and clothing and footwear market. It is home to numerous public sectors such as heavy industries, software companies, aerospace, telecommunications, machine tools, heavy equipment, and defense establishments. Bangalore is known to be the Silicon Valley of India due to its pre-eminent position as the leading contributor to India's IT industry. Bangalore has developed into one of India's major economic hubs and was rated by CNN as the "best place to do business" in the world.

Bangalore’s fast developing infrastructure also plays a role in attracting the organized retail sector. Bangalore is undoubtedly one of the fastest growing cities in Asia and also one of the most sought after cities in India by people, companies, multinationals and tourists. Bangalore city has also seen great improvements in its roads, highways and other infrastructure. Several flyovers have come into existence in the last few years easing the traffic and making travel easier. While there is still a lot to be done with regards to the deadly traffic, the Government has indeed been working at a great speed to bring Bangalore at par with the great cities of the world. If things move in the right direction, Bangalore 2010 will be truly a city of the future where everyone wants to live.

Also, Bangalore’s fast-growing middle class has been a major growth driver. The booming middle class households armed with greater disposable incomes currently comprise 8% of the total number of households. This figure is expected to increase to 13% by 2010 growing annually at around 15%. Disposable incomes too are expected to rise at an average of 8.5% p.a. till 2015.

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Also, Bangalore has attracted people from all over India. Bangalore has a huge non-Bangalorean community that has come into Bangalore for reasons like job, higher education, training, etc. The IT boom has pulled a lot of people into Bangalore. Bangalore is also known as an educational hub, and attracts students at all levels of education; be it schooling or masters. Bangalore has a mixed population with people from all walks and cultures of life coming here to make a living. Owing to these reasons, the city has a large number of linguistic groups, different cultures and religions all living in harmony. All this leads to the concentration of people in Bangalore and the number of consumers keep on increasing; creating a driving force that powers the growth of organized retailing in Bangalore. It is also developing as a tourist destination.

Finally, the growing mall culture in Bangalore has been a growth driver for organized retail in Bangalore. Mall growth is being seen as a clear indicator of the economic prosperity in India. Significantly, the number of malls in the country has increased at a fast pace. And they are doing brisk business. From almost no malls existing in the country over a decade ago, there were 136 operational malls in 2006; another 300 currently being built and expected to be operational by 2008 end. The emergence of malls has transformed the retailing environment in India and is expected to push organized retailing into the fast track. The concept of shopping malls is gradually getting accepted not only in large metros but also in small townships. Consumers get a prominent display and open access to products. Western-style malls have begun appearing in metros and second-rung cities alike introducing the Indian consumer to a shopping experience like never before.

The present study focuses on the challenges and opportunities faced by organized retail players. The objectives of the study include identifying the factors promoting or restricting the growth of organized retailing in Bangalore, comparing the extent of impact of the identified factors (both challenges and opportunities) within different product-based shop formats across organized retailers, comparing the organized and unorganized retailing scenario in Bangalore in order to understand these segments and to find out if they share the same challenge and opportunity factors, and comparing the organized and kirana sectors to understand their individual strengths and weaknesses.

Organized retailing, if at all it should grow to its expected levels, will grow from urban areas like Bangalore, Mumbai, Delhi, Kochi, Kolkata and Chennai where it already has a presence. The future of organized retailing depends on the performance of this sector in the above mentioned cities. For this reason, the study was carried out in the city of Bangalore among organized retailers. Since this study deals with the challenges faced by organized retailers, it could, to an extent be generalized for the other major cities in India. However, this generalization may vary depending on factors like presence of airports, ports, proper infrastructure, availability and adoption of technology, availability of skilled labor, mindset of state governments, mindset of people, and other local factors across states. DATA AND METHODOLOGY:

The data for the study was collected from a sample of one hundred managers of organized retail outlets and one hundred unorganized retail outlets. The sample retail outlets were selected by convenience sampling methods. The respondents were administered a structured questionnaire in which they were asked to rate the extent to which they were affected by each challenge factor and each opportunity factor on a seven-point Likert scale.

The type of study conducted was descriptive as well as exploratory, with emphasis on identification of factors that could possibly affect the growth of retailing, and analyzing the extent of impact of these factors. Primary data was elicited directly from retailers. Interviews were carried out to get further insight into the challenges faced and overcome by the industry.

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Data was also collected from retailers to assess the extent of impact of each factor on the different product formats. Secondary data was collected from various sources such as journals, industry reports, magazines, newspapers, and websites.

ANALYSIS & INTERPRETATION:

The extent to which organized and unorganized retailers perceive the impact of the challenge factors is summarized in Table 1.

Table 1: Table showing mean ratings of Challenge factors Organized Retailers Kirana Stores F value p-value Technology Availability, adoption and feasibility 4.76 3.17 100.778 0.000 Internal Logistical Problem 5.20 5.59 6.116 0.014 Availability of skilled workforce 4.65 4.98 2.503 0.115 Retail Shrinkage 5.05 4.91 0.526 0.469 Understanding Customers (Behavior and Loyalty) 5.00 4.63 5.480 0.020 Ever Increasing Customer Demand 4.50 4.20 2.793 0.096 Inefficient Distribution Channels 5.26 5.35 0.254 0.615 Delays due to lack of infrastructure 4.55 3.83 22.231 0.000 Power Supply 3.40 5.24 220.162 0.000 Land & Rental Rates 4.10 5.18 60.852 0.000 Competition from the other Sector 5.89 6.06 1.129 0.289 Competition between Retailers of same sector 5.77 5.50 3.075 0.081 Cost of operation 4.64 5.60 43.646 0.000 Government opposition to FDI 1.00 1.00

Source: Primary Data Organized retailers see competition from the unorganized sector as their biggest challenge, followed by competition between organized retailers and the inefficiency of distribution channels, internal logistical problem and retail shrinkage. For unorganized retailers, the major challenge they see ahead of them is organized retailing, followed by cost of operation, logistical problem, competition between other kirana retailers and inefficient distribution channels. Government’s opposition to FDI does not seem to affect organized or unorganized sectors. Overall, it was found that the first few rankings are the same for organized and unorganized retailing. So it can be understood that the major challenges faced by organized and unorganized retailers are largely the same. Dealing with these challenges could lead to the benefit of both sides, and the co-existence of both kirana and organized retailing in the same retail landscape.

The extent to which organized and unorganized retailers perceive different opportunity factors is summarized in Table 2.

Table 2: Table showing mean ratings of Opportunity factors Organized

Retailers Kirana Stores F value p-value

India’s booming economy 5.27 5.49 2.387 0.124 Large, earning youth customers 5.81 4.27 71.343 0.000 Bangalore developing as a tourist destination 4.58 5.03 4.782 0.030 Increase in trend of Impulse buying 4.71 3.72 32.263 0.000 Large number of educational institutions 5.26 5.43 0.823 0.365 Bangalore has people from all over India 5.46 6.01 16.653 0.000 Bangalore's growing middle class 6.00 5.69 3.846 0.051 Bangalore's position as India's major economic hub 4.47 5.01 8.298 0.004 Proportionate increase in spending with earnings 5.28 5.36 0.190 0.663 Growing mall culture in Bangalore 4.74 4.35 3.163 0.077 High bargaining power with suppliers 3.35 1.73 96.064 0.000 In house branding of goods 3.21 3.14 0.092 0.761 Bangalore’s fast developing infrastructure 4.64 5.31 16.194 0.000

Source: Primary Data

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Organized retailers see Bangalore’s growing middle class as their greatest opportunity

followed by large number of earning youth customers, Bangalore having people from all over India, proportionate increase in spending with earnings and India’s booming economy. The kirana retailers on the other hand see Bangalore having people from all over India as their biggest opportunity followed by Bangalore’s growing middle class, India’s booming economy, large number of educational institutions in Bangalore and proportionate increase in spending with earnings. Organized retailers as well as unorganized retailers feel that higher bargaining power with suppliers and in-house branding of goods are not a huge opportunity.

Comparing between the organized and unorganized sectors of retailing, it was found that even though there are differences in the extent to which organized retail and unorganized retail sector perceives a challenge or opportunity factor, the first few major factors are common for both segments.

The extent to which the challenge and opportunity factors are perceived to affect different product segments is summarized in Tables 3 and 4.

Table 3: Table showing Challenge factors in different product segments

Home Decor & Furnishing

Food & Beverage

Health, Beauty & Wellness

Books &

Music

General Merchandise

Electronic Goods &

Consumer Appliances

Fashion (Clothing,

Footwear & Accessories)

Technology Availability, adoption and feasibility 3.62 3.95 5.08 5.83 5.77 3.00 5.94

Government opposition to FDI 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Internal Logistical Problem 5.92 5.81 5.17 3.75 6.31 6.00 3.67

Availability of skilled workforce 5.69 4.14 6.08 6.17 2.92 6.36 2.72

Retail Shrinkage 2.54 6.14 5.58 4.33 5.85 3.73 5.94

Understanding Customers (Behavior and Loyalty) 5.38 4.76 4.17 5.83 3.92 6.18 5.06

Ever Increasing Customer Demand 3.46 4.10 2.58 4.83 6.00 6.18 4.67

Inefficient Distribution Channels 5.77 6.19 5.58 4.58 6.08 5.18 3.50

Delays due to lack of infrastructure (Roads and Traffic, Airport, Railways, Ports)

4.54 5.19 4.17 4.50 5.62 4.09 3.61

Power Supply 3.15 4.10 3.00 4.00 3.15 3.18 2.94

Land & Rental Rates 3.69 4.24 3.08 4.92 4.00 3.82 4.61 Competition from Unorganized Sector 3.54 6.14 6.33 6.33 6.23 6.00 6.39

Competition between Retailers 5.69 5.48 5.25 5.08 6.31 6.18 6.33 Cost of operation 4.00 4.43 4.33 5.83 4.00 4.00 5.61

Source: Primary Data

Table 4: Table showing Opportunity factors in different product segments

Home decor & furnishing

Food & beverage

Health, beauty & wellness

Books & music

General merchandise

Electronic goods &

consumer appliances

Fashion (clothing,

footwear & accessories)

India’s booming economy 5.62 4.86 5.17 4.75 5.38 6.18 5.28

Large, earning youth customers 6.08 5.71 5.75 6.17 5.08 6.27 5.78

Bangalore developing as a tourist destination 3.46 5.57 6.33 5.83 3.77 3.64 3.39

Increase in trend of Impulse buying 3.08 4.90 3.75 3.17 6.08 5.18 6.06

Large number of 3.00 5.62 6.17 6.58 4.38 5.27 5.61

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educational institutions

Bangalore has people from all over India 5.92 5.76 6.33 6.00 5.00 4.91 4.50

Bangalore's growing middle class 6.38 6.29 4.08 5.67 6.38 6.27 6.44

Bangalore's position as India's major economic hub 3.15 6.14 5.17 3.00 3.92 4.18 4.56

Proportionate increase in spending with earnings 5.77 6.14 2.75 5.67 5.38 4.64 5.67

Growing mall culture in Bangalore 3.15 4.48 4.42 5.75 4.00 6.18 5.39

High bargaining power with suppliers 2.62 3.00 2.50 1.92 5.15 3.00 4.72

Source: Primary Data

According to the Technopak report on organized retailing in India (2007), the following table shows the share of each product segment in the total retailing scenario in India in 2006, and a projection for the year 2010.

Table 5: Table showing the share of various segments in the Indian retail scenario

2006 2010

Home decor & furnishing 3% 4%

Food & beverage 60% 55%

Health, beauty & wellness 7.4% 8%

Books & music 1.6% 2%

General merchandise 4% 5%

Electronic goods & consumer appliances 5% 5%

Fashion (clothing, footwear & accessories) 14% 15%

Others 5% 6% Source: Technopak 2007 report on Organized Retailing in India The above figure shows a high 60% share for food and beverage segment in the year

2006, followed by fashion clothing, footwear and accessories at 14%. Since these segments collectively contribute to about 74% of the entire gamut of retailing in India, more emphasis should be made to negate the challenge factors and to leverage upon the opportunity factors faced by these two segments. Considering the top five challenges and opportunities in case of food & beverage segment, the following results are found.

Table 6: Table showing ranks of challenges and opportunities for the food and beverage segment Challenges Opportunities Rank 1 Inefficient distribution channels Growing middle class

Rank 2 Competition from unorganized sectors Bangalore’s position as a major economic hub

Rank 3 Retail Shrinkage Proportionate increase in spending with earnings

Rank 4 Internal Logistical problem Bangalore has people from all over India

Rank 5 Competition between organized retailers Large number of earning youth customers

Source: Primary Data Since food and beverage alone add up to 60% of the entire retailing activities in India, the

key to a successful organized retailing future lies in negating the above mentioned challenges and leveraging upon the above opportunities. Similarly, considering the top five challenges and

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opportunities in case of Fashion clothes, footwear and accessories segment, we get the following results.

Table 7: Table showing ranks of challenges and opportunities for fashion clothing and footwear segment

Challenges Opportunities Rank 1 Competition from the unorganized sector Growing middle class in Bangalore

Rank 2 Competition from organized sector Increase in impulse buying behavior

Rank 3 Retail Shrinkage Large number of earning youth customers

Rank 4 Technology, availability and feasibility Proportionate increase in spending with earnings

Rank 5 Cost of Operation Large number of educational institutions

Source: Primary Data

The fashion clothes, footwear and accessories segment is the biggest Indian retailing segment after food and beverage. The 2010 projection shows a substantial increase in the share of this segment over 2006. Therefore it is important to negate the above mentioned challenges and leverage upon the above opportunities in order to ensure a proper growth, not just of this segment, but of retailing as such.

The study also found some interesting miscellaneous results concerning organized and unorganized retail outlets. Kirana stores show a higher conversion of footfalls to customers than organized retail outlets. Organized retail outlets are mostly rented out, whereas kirana shops are mostly owned by the family running the shop. In-house branding of goods are more in organized retail outlets than in unorganized outlets; but on the whole, it is low in both cases. Kirana shops have in house brands in home décor and furnishing, food and beverage and general merchandise. Both organized as well as unorganized retail outlets give free home delivery, but organized retail outlets never sell goods on credit (not credit cards). Except home décor and furnishing, all other product format based kirana shops give credit to their customers. Kirana shops do not have loyalty programs at all. DISCUSSION

Both organized sector and the unorganized sector see each other as their biggest threat. But actually, it was found in the study that their major challenges as well as opportunities are almost the same. This means that mitigating the challenges and leveraging on the opportunities could benefit both sectors. This comes as a pacifier to the much talked about debate about organized retailers making unorganized retailers out of business.

It is not possible to deal with all the challenge and opportunity factors all at once. The most popular product segment in the Indian retailing scenario is the food & beverage segment, followed by the fashion clothing, footwear and accessories segment. They together contribute to about 74% of the entire retailing revenue. Therefore dealing with the most critical challenge and opportunity factors of these two segments would definitely give a face lift to the entire organized retailing sector.

Organized retail players must adopt strategies to enhance their growth. Without doubt, they have to make substantial investments in technology to ensure zero wastage of goods, time, effort, etc.; and in particular, they have to invest in supply chain infrastructure. On the other hand, the Government can to take several steps to help enhance organized retail growth. It can ensure single window clearance for retail chains, and can permit FDI in retail in phases, starting perhaps with food retailing. It can ensure flexibility of labor laws, ensuring availability of a skilled workforce for organized retail. It can ease distribution-infrastructure creation and Octroi.

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It can ease real estate and rent laws for retail outlets, and enforce zoning laws and city development plans.

The present study has some mild limitations. The sample selection was judgmental and convenience-based and this may not be perfectly representative of the retail scenario. Also, the sample size for kirana retailers was low, and could have given a better representation if a higher sample size was considered.

BIBLIOGRAPHY

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3) Berman, B. and Evans, J.R. (2003), Retail Management: A Strategic Approach, 9th Ed, Prentice Hall Publ.

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5) Freathy, P. (2003), The Retailing Book: Principles and Applications, Prentice Hall 6) Guha, R. and Jayaswal, R. (2008), “Government may allow FDI in food retail,” The

Economic Times, 22 April 2008 7) Gupta, S.L. (2007), “A Study on Trends in Retailing Industry in India - A Case Study on

Shopping Malls,” BVIMR-Management Edge Journal of Bharati Vidyapeeth University, January-June 2007

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