all factors influencing pakistani retail industry

RETAIL MARKETING

“Influencing factors to Retail industry in Pakistan”

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Table of Contents

ABSTRACT....................................................................................................................................................3

Dynamic Nature of Retailing........................................................................................................................3

The influencing changing environments......................................................................................................4

Economic factors:....................................................................................................................................4

Retailing affected by inflation and floods............................................................................................4

Political/Legal factors..................................................................................................................................6

Sociological & Cultural factors:....................................................................................................................7

The evolution of the Pakistani consumer................................................................................................8

A risk averse culture in Pakistan..............................................................................................................8

Changes with the changes in class system...............................................................................................9

Brand consciousness...............................................................................................................................9

Technological/Educational/Managerial factors.........................................................................................11

A fragmented market................................................................................................................................13

Competitive factors:..................................................................................................................................13

Competition is fragmented; foreign retailers boost modern retailing...................................................14

Ethical factors:...........................................................................................................................................15

The outlook for retailing is positive, but uncertainties remain..................................................................16

Conclusion.................................................................................................................................................16

Trends that are touching the future of retailing....................................................................................17

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ABSTRACT The revolution in retailing industry has brought many changes and also opened door for many

Pakistani as well as foreign players. In a market like Pakistan there is a constant clash between

challenges and opportunities but chances favor those companies that are trying to establish

themselves. So to sustain in a market like Pakistan companies have to bring innovative solutions.

Pakistani market has potential to accommodate many retail players, because still a small

proportion of the pie is organized.

We have tried in this report to discuss the factors affecting retailing like social, technological,

legal, competitive, economic and environmental etc. It tries to describe the different segments in

which retailing could have tremendous opportunity as well.

Liberalization and communications revolution has also brought the global corporate culture to

Pakistan; the habits of people are changing rapidly with changing life styles, changing ways of

living, customer pattern and buying behavior. All the things are changing.

These corporate sectors promoted activities and the glamour and pomp that surrounds in Pakistan

is in sharp contrast to the physical and social conditions in lower and lower-middle income

settlements. There is an introduction of fast-food chain stores, garments stores and international

branded stores of different consumer items is available everywhere, they have opened up their

branches in all the big cities of Pakistan. It is the emergence of new aspirations related to

consumerism, and the desire for belonging to “contemporary” world as portrayed by the media.

As the societal culture is changing so do the purchasing pattern of people. To meet their demands

there is an advent of new shopping stores that have a new look now the shopping is not the matter

like of old days.

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Dynamic Nature of RetailingThe dynamic nature of retailing has never been demonstrated, experienced and seen better than

now. Changes in environments — Economic, Political/Legal, Socio-cultural, Technological, Ethical and

Competitive — within which retailers of all kinds must operate, force adjustments in policies, methods

and managerial strategies.

The retailer has to be very familiar with the environmental factors. Also, he has to remain

watchful of the continuous change taking place in the environments since the change in these factors has

and will always have vital impact on survival, growth, profit making and ultimate success of the business.

Therefore, as far as possible, all plans, objectives, strategies, policies have to be formulated and

implemented, catering for and considering the changing environments.

The influencing changing environmentsEconomic, Political, Legal, Social, Cultural, Technological, Ethical and Competitive

Environment significantly influence the conduct of retail enterprises and for each factor, as already

emphasized, the retailer not only has to be familiar with them but also has to keep a close watch on the

likely changes which may occur. The following forces under each factor need consideration at all times.

Economic factors:The economy has a significant impact on the viability of a retail strategy. A micro level

assessment considers the industry and market in which a company competes, the customers who purchase

its products, the competitors, and competition who threatens it and the suppliers on which retailer

depends. Pakistan is a developing country and its economy is the world’s 27 th largest economy based on

its purchasing power. However, the country remained impoverished due to internal political disturbances

and negligible foreign investment, since independence. With rise in development spending by Islamabad,

the country’s poverty levels reduced by 10% from the year 2001 to 2007. The economy grew between

2004-07 due to rise in GDP from 5 to 8%. The growth of the economy was affected once again during the

last three years due to global economic recession and mismanagement by the current democratic

government.

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Retailing affected by inflation and floodsPakistan’s economy improved during 2010 in line with the global recovery. However, retailing

sales in current value terms grew less in 2010 than that in 2009. This is because consumer spending was

affected by other factors such as the large scale floods which hit Pakistan in July 2010 and high inflation.

There was a lack of foreign entrants into retailing in 2010 due to foreign investors adopting a wait-and-

see approach amid the economic uncertainties.

Following economic factors are of great importance while drafting a retail strategy

1) Basic Economic System

Basic economic system in Pakistan is a mixed type system. The Pakistani economic system provides

ample opportunities for private retailers to enter grow and earn handsome profits from the growing

market.

2) Economic Stability

Economic stability is one factor that has affected the business scenario more than any other factors during

last four years. Direct foreign invest is continuously decreasing from 2007 to onwards. Pakistani economy

has been struggling miserably to show some sustainable growth in last few years which has disappointed

the foreign investors gradually.

3) Market Size

Pakistan market size is large and provides wide range of options for retailers to earn. According to an

estimate Pakistani population is near 180 million now. This shows the potential for growth and

development in retail sector in economy

4) Social Overhead Capital

Social overhead capital is defined as Capital spent on social infrastructure, such as schools, universities,

hospitals, libraries. As government spends on social overhead capital opportunities are available for

public to grow that indirectly increases their purchasing power and in this way economy grows and

prospers

5) Personal Disposable Income

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The amount of income left to an individual after taxes have been paid, available for spending and saving.

Due to inflation, unemployment and unfair system of wealth distribution most of Pakistani have meager

level of disposable income.

6) Distribution of Income

In economics, income distribution is how a nation’s total economy is distributed amongst its population.[

The distribution of income lies at the heart of an enduring issue in political economy—the extent to which

government should redistribute income from those with more income to those with less.

7) Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a

period of time. When the general price level rises, each unit of currency buys fewer goods and services.

Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in

the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is

the inflation rate, the annualized percentage change in a general price index (normally the Consumer

Price Index) over time.the current inflation rate in Pakistan is upto 14 % as per governmental resources

but in reality it is more than 20% which has adversely affected the purchasing power of people in general

and of middle class in special. In this scenario many of the new opened small retail outlets have faced

irregular difficulties and set backs. Many businesses have shut down and many investors have withdrawal

and transferred their capital from the country

8) Employment opportunities

It is said that retailing can create additional two million jobs In Pakistan and will benefit population by

employing local (Urban) youth and others directly or indirectly. But it is feared that our friendly

neighborhood kirana shops where, one can make purchases in small quantities and return the goods if not

found good and many more friendly services, will be on the verge of disappearance there by creating a

vacuum which cannot be filled by the big organized one.

Political/Legal factorsThe political environment of a country is influenced by the political organizations such as philosophy of

political parties, ideology of government or party in power, nature and extent of bureaucracy influence of

primary groups etc. political stability in the country, foreign policy, Defense and military policy, image of

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the country and its leaders in and outside the country. The political environment of the country influences

the business to a great extent. The current political climate can influence the types of legislation that can

influence business spending or tariffs on goods and services. Political factors can be restrictive or

beneficial. Restrictive factors are those factors that limit profits; such as constraints placed on enterprise

through fair-trade laws, antitrust laws, tax laws, minimum wage legislation or pollution laws.

Governmental influences are of particular interest to large retailers & those enterprises that operate in

foreign countries where the political environment is volatile and information is scarce.

Following political factors are of great importance while drafting a retail strategy

1) Political Stability

Political stability is something that has never been witnessed in Pakistan regrettably since the

time Pakistan has come into being. Political uncertainty, no doubt, is an investor’s nightmare. It

does disturb the flow of foreign direct investment plans both into the private sector as well as the

government owned public sector units and that surely affects economic growth and it has also

striking impact on retail industry

2) Political Organization

3) Relevant Legal Rules: Quality, efficiency and effectiveness of the legal structure in terms of

general business law, labor law, tax law, laws relevant to business and General Law &

Order.

4) Degree of Law enforcement and reliability.

5) Flexibility of Law and Legal Changes.

Sociological & Cultural factors:

Social responsibility is defined as a managerial obligation to take actions that protects and improves both

the welfare of society as whole and the interests of the organization. In recent years there have been

multiple corporate ethical issues that have influenced social views. Unfortunately companies either those

who are big in size or small retailers have being found guilty or not respecting the social norms and

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values of local culture in Pakistan. Sociological factors such as costs structure, customs and conventions,

cultural heritage, view toward wealth and income, respect for seniority, mobility of labor etc. have far-

reaching impact on the business. These factors determine the work culture and mobility of labor, work

groups etc. For instance, the nature of goods and services to be produced depends upon the demand of the

people which in turn is affected by their attitudes, customs, so as cultural values fashion etc. Socio-

cultural environment determines the code of conduct the business should follow. The social groups such

as trade unions or consumer forum will intervene if the business follows the unethical practices. For

instance, if the firm is not paying fair wages to its business in indulging in black marketing or

adulteration, consumers’ forums and various government agencies will take action against the business.

The evolution of the Pakistani consumerIn the past few years the whole concept of shopping has been altered in terms of format and consumer

buying behavior. With the increasing urbanization, the Pakistani consumer is emerging as more trend-

conscious. There has also been a shift from price considerations to designs and quality as there is a greater

focus on looking and feeling good (apparel as well as fitness. With the emergence of organized retail and

modern retail formats, private labels have been gaining significance. They enhance the profitability levels

of product categories, increase retailers’ negotiation powers and create consumer loyalty. More retailers

are introducing their own brands in all categories including Food & Groceries, apparel, accessories, and

footwear. These own brands also do not have to manage intermediaries since retailers maintain oversight

of the supply chain. Today, customers buy experiences and not brands or products.

Following Sociological-Cultural factors are of great importance while drafting a retail strategy

Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across

most categories of consumption

A risk averse culture in Pakistan Taking risk is a learned behavior but harshly it is being criminally neglected in our country. Most of the

qualified people in the country are running behind small jobs while most of the entrepreneurs are mere

literate. People from the very start of their life are taught to stay in boundaries and limits there for a risk

taking mind is not flourished and developed. People keep on moving around the same circles as their

forefathers. It is with dreams that our learning truly starts – dreams that keep us awake! Our aspirations

trigger curiosity and compel us to learn in order to build our capacity to create what we truly believe is

important to us. We dare to dream only when we have faith in ourselves and in our future. Most

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organizations in Pakistan are driven along formal, hierarchical lines where people are afraid to truly say

what they feel, and often resort to double talk – saying ‘yes’, when they really mean ‘No’! While we may

have acquired the capacity for using the latest buzzwords in management, our mentality has to change for

us to start saying what we really mean in the best interest of the company and its stakeholders. We live in

a risk-averse culture. This makes openness difficult thus impeding growth. Pakistan needs fundamental

structural reforms to reorient the elitist policy framework into a `people centric` economic model. An

inclusive growth strategy is a mean to an end of achieving development.

Changes with the changes in class systemThe coming of modern retail formats is an important phenomenon in Pakistan. It can be considered a

factor of the positive socio-economic change Vis a Vis growth in the urban Middle class, growth in

disposable incomes, increasing proportion of working women and greater consumer awareness regarding

the type of products purchased.

This also raises the possibility of consumers visiting a retail outlet for the shopping experience rather than

the actual shopping need. In Pakistan the neighborhood general store or the kiryana store has been the

typical retail format for so long that the modern retail outlets like Makro and Metro don not just provide

the typical array of retail products but also a complete shopping experience. Consumers will treat

shopping like an outing by taking their family and friends along.

Brand consciousness There is a growing orientation towards branded goods among Pakistan consumers, especially in urban

areas. While in the past, consumers usually shopped according to price, nowadays consumers pay more

attention to product quality and branding. The higher standard of living and the influx of Western culture

have combined to make Pakistani consumer tastes more sophisticated. Another emerging trend is the

rising status of women as consumers and decision makers. As more women enter the workforce, more

women are also gaining economic independence and higher social status. Hence, demand for female-

specific products is on the rise. Retailers have responded by launching products and marketing activities

which specifically target women.

1) Over all population growth

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Population growth in Pakistan is among highest in the world. This poses a good range of opportunities for

retailers. We generally hear that economic development in Pakistan is slow due to large and increasing

population. There are, on doubt, some countries with low population density and high per capita income,

but there are also many countries with a high population density and a low per capita income. What really

matters in economic development is not the size of the population but the quality of population regarding

education, habit of hard work, and honesty.

2) Class structure

3) Mobility of people and individual mobility

4) Suburban living

5) Different Groups (Ethnic, Linguistic, Political, Religion,

6) Preferences, Biases, Prejudices and social values

5) Population growth in certain age groups

Most of the population in Pakistan comprises of young people so retailers can in particular focus on this segment to earn handsome revenues

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http://www.pap.org.pk/statistics/population.htm#tabfig-1.1

6) Culture

All too often we see the cultural diversity within antagonism as an area of difficulty rather than as an

opportunity to build competitive advantage. Frequently understanding the nature and value of cultural

diversity is not well embedded within our business thinking and practice. In many ways thinking in this

area has not developed in line with the trend to globalization. Ours is a mixed type of culture. This

diversity in culture in reality opened new horizons of opportunities for the retailers. They can find many

niches and competitive advantages in order to get ahead of their competitors by rightly focusing on the

cultural diversity

Technological/Educational/Managerial factorsTechnology factors are the scientific advances, which influence the competitive position of the retailer.

Maintaining awareness of new technologies decreases the probability of becoming obsolete and promotes

innovation. Advancements in technology can impact the transformation plan in many ways. New

technology can change the demand for a product, render current selling processes obsolete, and reduce

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http://www.pap.org.pk/statistics/population.htm#tabfig-1.1


costs to undercut competitors, produce new products and a host of other possibilities. . Pakistan lacks a

strong supply chain when compared to Europe or the USA. The existing supply chain has too many

intermediaries: Typical supply chain looks like:- Manufacturer - National distributor - Regional

distributor - Local wholesaler - Retailer - Consumer. This implies that global retail chains will have to

build a supply chain network from scratch. This might run foul with the existing supply chain operators.

In addition to fragmented supply chain, the trucking and transportation system is antiquated. The concept

of container trucks, automated warehousing is yet to take root in Pakistan. The result: significant

losses/damages during shipping.

1) Industrialization

Industrialization is the engine of growth in economy. Europe and west have achieved high mark of

growth at the dint of industrialization.

Rough outline for the reason of poor industrial structure in Pakistan include:

Power shortage

Lack of trained manpower

Lack of proper infrastructure

Inefficiency

Lack of products innovation resulting in concentration of industries in some specific sectors.

Changing political and economic policies

Bad law and order situation resulting in lower investment in industries

Corruption in related government agencies and so many govt. agencies intervention

Higher interest rate

These are some of the problems, being faced by industries in Pakistan. One can include more points

to the list.

2) Structural changes in market

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According to Nielsen data provided by the study, the distribution of kiryana stores has Fallen from 1.61

per thousand (population) to 1.51 over the decade 1992-2002. There has been a rise in the distribution of

general stores over the same period from 1.09 to 2.71 per thousand. Kiryana stores and general stores

currently comprise 95% of total Retail sales. The number of outlets per thousand is currently 15 for urban

Pakistan. However, with the advent of Global Retailers it is predicted to fall to 10. At the same time the

share of kiryana and general stores as a percentage of retail sales is also expected to decline to 50%.

Another result would be a shift from the over the counter dealing with the shop keeper, Purchasing

behavior to using trolleys, individually picking items from aisles and then Lining up in queues to check

out the products purchased. This change in retail outlets described as “retail consolidation” by Ghani

(2005) occurred in the late nineteenth century in North America and Europe and is recently taking place

in Pakistan. Similar to the case of foreign markets, Pakistan is also facing a rise in the self service modern

Retail outlets with stores like Makro and Metro opening in Pakistan and Carrefour. The retail climate is

already witnessing a rise in consumer awareness resulting in a greater demand for foreign products,

frozen and ready to cook items and an entire shopping experience for customers.

3) literacy level

Original literacy level in Pakistan is not very appreciable. Governmental figures in this regard do not

depict the original picture instead claiming false facts. Due to lack of literacy and modern knowledge

of technology different kinds of hurdles come in the way of investors like self operated machines and

Plastic money have not gained much popularity in Pakistan due to lack of technological literacy

4) Attitude of people

Attitude of people is not positive about the use of new technology because of different reason some of

them are highlighted here

High cost

Reluctance to learn new ways

Adherences to old ways

5) Enhanced means of transport and communication

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A fragmented marketAccording to the Small & Medium Enterprise Development Authority, there are over 125,000 retail

outlets all across Pakistan. Approximately 94 per cent of these are miniscule corner shops and small retail

outlets in cities and villages.

This poses a significant challenge for most businesses looking to enter the food and agribusiness sector.

Despite the fact that Pakistanis spend close to $42 billion a year on food and other retail shopping,

businesses find it very difficult to reach the mass market of Pakistani consumers simply because it is not a

single marketplace but tens of thousands of little shops.

Urban areas form a somewhat more concentrated market. Some 30,000 stores serve close to 55 per cent of

the population. Yet even this market does not have a single chain of retail outlets that has its own

integrated supply chain. This fragmentation of the market has a very real impact on the profitability of

food and consumer goods producers.

Competitive factors:Every business has external peers that perform similar functions within their professional discipline.

These peers are considered competitors and they are rival producers of goods or services. These

competitors contribute to the overall industry by their ability to deliver goods and services of high caliber

at competitive prices. Competition is good from a market perspective as it gives consumers choices and

provides the businesses and opportunity to create a niche. Competitors are purchased as a strategic move

to gain market share

1) Number and Type of competitors

The high growth in the retail sector can be witnessed in the great surge in the number and different

formats of retail outlets that deliver a value added shopping experience. The most notable trend among all

retail sectors can be seen in the food and grocery business. Traditionally grocery purchases were limited

to the neighborhood general store, which is typified by the counter service format, easy credit terms,

limited variety and personal service. However the last decade has seen the growth of organized retailing.

Organized retailing is embodied by self-service stores, which provide convenience in the form of

organized aisles, greater choice, push trolley system, and a single check out point. Local stores like

Naheed Super Store, Imtiaz Store, D Mart, Ebco, mysuper Store in Karachi have given rise to a whole

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new shopping experience. The facilities offered by such stores have added a whole new dimension to

grocery retailing.

With the entry of global retailers (grs) in Pakistan, the Dutch based Makro and German Metro cash and

carry, in Karachi and Lahore the retailing scene is set to change profoundly.

Changes which occurred over the last decade in the retail sector in urban Pakistan, in terms of a decrease

in traditional ‘kiryana’ stores, an increase in general stores, and the emergence of new formats such as

superstores, malls, and retail chains. These trends are discussed in the context of broader socio–economic

changes, including growth in the urban middle class and disposable incomes. The paper discusses similar

trends that occurred in the late nineteenth century in North America and Europe, the recent rise in

international retailing, and the possibility of global retailers such as Germany's Metro and the French

Carrefour, entering the Pakistani market. The entry of such firms has often resulted in profoundly altering

the retail landscape, as has been the experience in the less developed markets of East Europe, Latin

America, and the Asia Pacific region.

It is estimated that in 2002, about 6.8 million of the 50 million people living in urban Pakistan belonged

to the upper and upper–middle class, and represented a grocery market worth $1.7 billion. This segment,

projected to grow to 17 million people by the year 2010, is expected to be the first to switch to modern

retail stores. This paper projects the impact global retailers might have on Pakistan's retail landscape.

Competition is fragmented; foreign retailers boost modern retailingRetailing in Pakistan remains highly fragmented and is dominated by small retailers, which compete

within their own geographic areas in terms of price, personal relationships and product ranges. Large

retail stores are mainly found in the major cities where there is a higher concentration of middle and

upper-income consumers. Large supermarkets such as Agha’s Supermarket and Naheed’s have existed in

Pakistan for decades. Yet it is the advent of large foreign players which is fuelling the country’s modern

retailing revolution. Carrefour, the France-based chained hypermarkets retailer, has been operating a

hypermarket outlet in Lahore since 2007 and plans to set up more outlets in Pakistan over the forecast

period.

2) Strength of competitors

3) Size of Competitors

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Ethical factors:1) Integrity/Honesty of the Competitors

2) Integrity/Honesty of the people

The teachings of Holy Prophet (PBUH) can solve all problems facing the business community and

industrial sector of Pakistan.

The Muslims ruled the world for more than six centuries as long as they followed the rules and

regulations and guidelines given by the Holy Prophet (PBUH) but their decline started when they

deviated from the guidelines.

‘Life of Prophet Muhammad (PBUH) is a genuine role model for business world’. we recite Darood but

do not follow the teachings of the Prophet (PBUH).

Hypocrisy had not only destroyed business but all segments of society were affected by it. that there is no

better example for business community to follow than the life of Holy Prophet (PBUH).Holy Prophet

(PBUH) was always fair and honest in business and other relations. Holy Prophet (PBUH) stressed the

need for fair earnings while prohibited interest. However, unfortunately, our complete financial system is

based on interest; terming it a reason for decline of Muslims Sahaba followed the teachings of the Holy

Prophet (PBUH) with love and respect. However, Muslims do not follow him. Following the teachings of

Quran and Sunnah is success of life. A successful businessman can be recognized with his honesty in

dealings. Following the teachings of Prophet Muhammad (PBUH) is the only solution to end corruption

from society. All employees should have the opportunity to contribute, learn, grow and advance based on

merit. Ethical principles which employees must follow include:

honesty

keeping their promises

fairness

respect of others

cohesion

integrity

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loyalty

1) Ethical conduct and values of people and workers

Ethical behavior is an individual responsibility. Behavior reflecting high ethical standards is

expected of all executives and employees regardless of their position or location. Again

unfortunately in this sector our country is unable to put forward a good example

The outlook for retailing is positive, but uncertainties remainThe effects of the improved global economic situation were evident in Pakistan during 2010. This is

expected to boost retailing value sales over the forecast period. However, high inflation will have a

negative impact on consumer spending. Although inflation is currently on the decline, it may spike again

due to unforeseen circumstances including adverse weather conditions, natural disasters and changes in

global demand. Other factors which may impede retailing include terrorism, corruption, and general

domestic turmoil.

ConclusionModern retailing is scrambled and we will probably see more changes in the future. In such a

dynamic environment, a retailer’s marketing manager must choose very carefully among the available

kinds of strategies. And retailer must plan their marketing mixes with their targets customers’ needs in

mind while at the same time becoming the part of an effective channel system.

The retail sector in Pakistan is witnessing a huge revamping exercise as traditional markets make

a way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores.

Western style malls have begun appearing in metros and second-rung cities which introduced the

Pakistani consumer to a shopping experience like never before. Rated high among most attractive

emerging retail market, Pakistan is being seen as a potential market. Many foreign investors are also

showing keen interest to enter into the Pakistani market. With the flow of FDI, retail sector will have to

see a many changes in the coming years.

Disorderly merchandising will continue as retailing evolves to meet changing consumers’

demands. But important breakthroughs are still possible our society needs a retailing function but all the

present retailers may not be needed. It is safe to say that the future retail scene will offer new challenges

and opportunities.

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Trends that are touching the future of retailing1) The increase in population and slowed down economic growth

2) Retailers can no longer enjoy sales and profit growth through natural expansion in current and

new markets

3) Greater competition and new types of retailers make it harder to improve market shares in

existing markets

4) Consumer demographics, lifestyles, and shopping patterns are changing rapidly

5) Quickly rising costs make more efficient operation and smarter buying essential to successful

retailing

6) Retail technologies are growing in importance as competitive tools to produce better forecasts,

control inventory costs, order electronically from suppliers, communicate between stores, and sell

to consumers within stores.

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all factors influencing pakistani retail industry

Documents

late nineteenth century

neighborhood general store

urban middle class

risk averse culture

modern retail formats

general stores

retail strategy 1

pakistani consumer