Hedging Options

Modern retail has entered India as seen in sprawling shopping centers, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof. Growth in Indian retail has been driven by the country’s economic fundamentals over the past few years. Increasing number of nuclear families, easy financing options, increase in the population of working women and emerging opportunities in the service sector during the past few years have been the key growth drivers of the organised retail sector in India.

Consumers are now showing a growing preference for organised retail, resulting in increased penetration. The following factors contribute for the growth of organised retailing.

Changes in demographics India has the lowest median age of 24 as compared to developed countries. The composition of the Indian population is shifting towards the age group of 20-49 i.e. the working population with purchasing power. Thus, India has the largest ‘young’ population in terms of sheer size and this young segment is the major driver of consumption as they have the ability and willingness to spend.

Increased credit friendliness There has been a radical change in the Indian consumers’ mindset regarding credit. With the easy availability of credit and declining interest rates, personal credit has witnessed growth. The boom in financing has resulted in an increase in spends on housing and consumer durables such as two-wheelers and cars. The use of plastic money has increased significantly total spending on shopping and eating out.

Consumer Pull In the pre-liberalization supply-led market, the power rested clearly with the manufacturers. In today’s demand-led market, it’s the consumer who calls the shots. Consumers can be divided into two broad segments:

High-income segment This comprises consumers who do not shop themselves, have a very low level of involvement and whose monthly grocery bill forms a very small part of the salary.

Middle and lower income group This includes consumers who are highly involved in grocery shopping, as this expenditure constitutes 50% or more of the monthly salary. This segment is highly value-conscious, constantly looking for bargains and is made up of active shoppers.

Rising Incomes India is the second fastest growing economy in the world. A larger number of households are getting added to the consuming class with growth in income levels. Increasing instances of double incomes in most families coupled with the rise in spending power is further fuelling the growth of retail sector. Though this growth is most evident in urban areas, it has also taken place in rural markets.

Media There has been an explosion in media as well during the past decade. This media bombardment has exposed the Indian consumer to the lifestyles of more affluent countries and raised their aspirations and expectations from the shopping experience — they want more choice, value, service, experience and convenience.

Consumer Behaviour The growth of modern retail is linked to consumer needs, attitudes and behaviour. Rising income levels, education and global exposure have contributed to the evolution of the Indian middle class. As a result, purchasing and shopping habits have been inculcated and are increasing day by day. Today, people are willing to try new things and look different, which has increased spending on health and beauty products apart from apparels, food and grocery items.

There has been a change in shopping behaviour in urban India over the past few years that is, they want everything under one roof and a bigger choice of products. They also look for speed and efficiency. Increased awareness has also meant that consumers now seek more information, variety, product availability, better quality and hygiene as well as increased customer service.

Traditionally, shopping for children was confined to festivals when dresses were bought for them. But now, working parents prefer to spend as much time as possible with their children; this includes their shopping hours also. As malls and supermarkets offer the option of entertainment along with shopping, younger couples prefer to shop there.

Consumerism Cycle Being the closest link to the consumer in the supply chain, retailers benefit accordingly. Manufacturers spend a lot of money promoting a product, but if it’s not on the shop-shelf, consumers won’t be able to buy it. Manufacturers have also realized that retailer recommendations matter, particularly in smaller towns.

Rural Market The rural market is beginning to emerge as an important consumption area, for most key consumer durables and non-durable products. In response, manufacturers of consumer goods have begun developing new products and marketing strategies with the rural consumer in mind.

Supply Chain The consumer goods sector has been transformed by increased liberalization, continuous reduction in customs duty, a shift from quota to tariff-based systems for imports and sophistication in manufacturing over the past few years. Entry restrictions for multinationals have been removed in nearly all sectors. All this has enabled chain retailers to enjoy better range depth and sourcing options as well as improved average margins. There has been a proliferation in the range across all categories, with a simultaneous increase in the supply of products and quality retail space.

Hubs Chennai, Bangalore and Hyderabad have become major retail hubs. In Chennai, about 17% of food sales flow through supermarkets and 25-30% of consumer durable sales come from specialty chains such as Viveks and Vasanth.

Entry of Corporate In contrast to the situation a decade ago, the level of interest in retailing as a growth opportunity has increased visibly now. Large conglomerates like the Tatas, ITC have initiated investment in retailing. Big business houses today are in a position to provide the Indian masses with shopping satisfaction, entertainment, quality products, polite salespersons, product information and discounts. Though margins are low at the moment because of high property costs and poor infrastructure, this is the only business where one buys in credit and sells for cash.

Family-Owned Businesses With the new-age, demanding consumer preferring to shop in these big retail chains, traditional shops will face a difficult time trying to meet consumer expectations. This will make retailing an unattractive proposition for them. The process is likely to be kick-started by grocery stores transforming into supermarkets since the margins in the grocery trade are the lowest in the business.

New Entrepreneurs The growing attractiveness of the retail trade has begun to attract new entrepreneurs with ideas, and venture capitalists with funds are also increasingly willing to invest in retail businesses.

Foreign Retailers The increasing attractiveness of the sector has drawn the interest of a number of global retailers. With the opening up of the economy, more and more MNCs have entered the Indian business arena through joint ventures, franchisees or even self-owned stores.

While foreign retailers cannot start operations on their own mainly because of FDI restrictions on the sector, a number of companies, are exploring entry options. In apparel, Benetton, Lifestyle and Zegna are already in business, and Dairy Farm has a number of retailing joint ventures in India.

Technology The computerization of the various operations in a retail store —including inventory management, billing and payments as well as database management — widespread use of bar coding, point-of-sale terminals MIS has changed the face of retailing drastically. Apart from providing the retailers with better and timely information about their operations, the technology also performs such tasks as preventing theft, promoting the store’s goods and creating a better shopping atmosphere. This is done with the help of closed-circuit televisions, video walls, in-store video networks, and other forms of interactive applications ranging from CD-ROMs to virtual reality to let customers select and buy products.

Trained manpower Qualified and trained manpower is of utmost importance in retail. The need for specialized skills is increasingly felt in the areas of strategic management, merchandise management and store management.