impact of cultural change in retailing

8/14/2019 Impact of Cultural Change in Retailing

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SHEFALI TALWAR: MS-A-01

URVASHI KAPOOR: MS-A-02

MANPREET SINGH GANDHI: MS-A-03PAYAL MALHOTRA: MS-A-05


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SHEFALI TALWAR: MS-A-01

URVASHI KAPOOR: MS-A-02

MANPREET SINGH GANDHI: MS-A-03PAYAL BAHL: MS-A-05


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IMPACT OF CULTURAL CHANGE IN RETAILING

INTRODUCTION: RETAILING

The word retail derived from the French word retailler, meaning to cut the bulk. Inother word, it implies a first hand transaction with the customer.

Retailing can be defined as the buying and selling of goods and services. It can also bedefined as the timely delivery of goods and services demanded by consumers at price thatare competitive and affordable.

INDIAN PHASE:

For years rumors in the retail industry have predicted the imminent, complete opening ofthe Indian retail sector to non-Indian operators. Since the economic liberalization

measures of 1990 were legislated, the amount of foreign direct investment (FDI) flowinginto this sector, together with many others, such as banking, insurance, and print media,has been closely controlled by the Indian government. Partly as a result, Indias retailsector remains highly fragmented: 97 percent of the market belongs to unorganizedoutlets; just three percent to organized ones. Indias retail sector remains one of the fewlarge unconsolidated markets in the world.

The last few years have witnessed an sudden increase of organized retail formats likesupermarkets and hypermarkets in an otherwise fragmented Indian retail market. India iswitnessing an unparalleled consumption explosion. The economy is growing between8 % 9 % and the improvement in income along with factors like favourable

demographics and growths in aspiration consumption are the drivers for retail in India.In 2005, the retail industry in India amounted to Rs. 10000 billion accounting for about10% growth to the countrys GDP. The organized retail market in India out of this totalmarket accounted for Rs. 350 billion which is about 3.5% of the total revenues.

This retail market in Indian retail sector is expected to cross Rs. 1000 billion by 2010.Traditionally the retail industry in India was largely unorganized, comprising of drugstores, medium and small grocery stores. Most of the organized retailing in India havestarted recently and concentrated on metropolitan cities only.

Organized retail in India refers to the modern retail formats like supermarkets,hypermarkets prevalent in most developed countries. This sector remained a dormant

sector largely due to lack of infrastructure for large scale retail, absence of productvariety, and a conservative Indian consumer. Today, the flood of products in the marketcoupled with more informed, interested and adaptable Indian consumers, have created theatmosphere for entry of organized retail to tap into the $320 billion Indian retail industry.
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Different forms of retailing

Hypermarts Large supermarkets, typically (3,500 - 5,000 sq. ft) Mini supermarkets, typically (1,000 - 2,000 sq. ft)

Convenience store, typically (7,50 - 1,000 sq. ft) Discount/shopping list grocer Traditional retailers trying to reinvent by introducing self-service formats as

well as value-added services such as credit, free home delivery etc.

The Indian retail sector can be broadly classified into

1. Food retailers2. Health and beauty products3. Clothing and footwear

4. Home furnishing and household goods5. Durable good6. Leisure and personal goods

In a world of modern retail, India stands out as one of the last great investmentopportunities. The first investors will be attracted by the seemingly limitlessopportunities. However, the risks they face, whether they are be they political, sectoral,physical, labor, or regulatory in nature, are equally daunting. Market entry must becarefully planned with a steady flow of business intelligence feeding the businessdecision process.

CULTURAL CHANGE IN INDIA AND ITS IMPACT

CULTURAL INFLUENCES

Culture is that complex whole which includes knowledge, belief, art, law, morals,customs and any other capabilities and habits acquired by humans as members of society.Culture influences the pattern of living, of consumption, of decision- making byindividuals. Culture is acquired. It can be acquired from the family, from the region orfrom all that has been around us while we were growing up and learning the ways of theworld. Culture forms a boundary within which an individual thinks and acts. When one

thinks and acts beyond these boundaries, he is adopting a cross-cultural behaviour andthere are cross-cultural influences as well. The nature of cultural influences is such thatwe are seldom aware of them. One feels, behaves, and thinks like the other members ofthe same culture. It is all pervasive and is present everywhere. Material culture influencestechnology and how it brings cultural changes like use of telephones, mobile phones,clothing styles and fashions, gives the marketers a chance to improve the product,packing, etc. to meet the needs of the customers. Norms are the boundaries that culturesets on the behaviour. Norms are derived from cultural values, which are widely told


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beliefs that specify what is desirable and what is not. Most individuals obey normsbecause it is natural to obey them. Culture outlines many business norms, family norms,behaviour norms, etc. How we greet people, how close one should stand to others whileconducting business, the dress we wear and any other patterns of behaviour. Culturekeeps changing slowly over time; and is not static. Changes take place due to rapid

technologies. In case of emergency, war, or natural calamities, marketers and managersmust understand the existing culture as well as the changing culture and culture of thecountry where the goods are to be marketed. Major companies have adapted themselvesto international culture and are accepted globally.

Everybody in this world is a consumer. Everyday of our life we are buying andconsuming an incredible variety of goods and services. However, we all have differenttastes, likes and dislikes and adopt different behaviour patterns while making purchasedecisions. Many factors affect how we, as individuals and as societies, live, buy, andconsume. External influences such as culture, ethnicity, and social class influence howindividual consumers buy and use products, and help explain how groups of consumers

behave. The study of culture encompasses all aspects of a society such as its religion,knowledge, language, laws, customs, traditions, music, art, technology, work patterns,products, etc. Culture is an extremely critical and all pervasive influence in our life.

Indian consumer has undergone a remarkable alteration. Just a decade or two ago, theysaved most of their incomes, purchased the only necessities.

But today, equipped with higher income, credit cards, exposure to new shopping cultureof west, desire to show status and to improve standard of living, the Indian consumer isspending a lot. His new mentality, in turn is fueling the growth of organized retail inIndia.

YOUNG SHOPPERS

Most of the consumers have grown up with television, the internet, and have beenexposed to the better standard of living and consumer culture abroad. This generation isalso making money at a younger stage in life due to call centre jobs and other avenues ofemployment openings. As a result most of them are considering these shopping malls asthe place for their entertainment.

HIGHER INCOME/MNCS

With the entry of MNCs in India, the people are getting better job opportunities, and theincome levels are also becoming better with different allowances. This sets the stage for avery exciting and promising retail market in the future.

PLASTIC MONEY

The finance section has already seen a huge expansion. Nowadays credit cards, debitcards, short time loans have become easily accessible and have contributed to the


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emergence of a consumer culture in India. Credit card reward schemes, flexible financingoptions, EMI facility, loyalty cards are tempting the Indian consumer to shop.URBANIZATION

Growing urbanization and different facilities of cities converted the local population fromnet saver to net spender.

AWARENESS LEVEL

The urban population is well aware of the different shopping malls and through differentmedia they are well known about the offers and schemes.

ASPIRATION

Aspirations for better standard of living make the urban consumer spending more.

While consumer demand is driving retail growth, it is in turn being driven by thefollowing factors

1. Economic growth2. Improved standard of living3. More affluence4. Mass awareness5. Demographics6. Credit availability7. Promotional offers8. Status symbol

These positive macro trends are resulting in changing preferences in demand for lifestylegoods. Mind sets are shifting towards an organized retailing experience.


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Some changes in our culture:

1. Convenience: as more and more women are joining the work force there is an

increasing demand for products that help lighten and relieve the daily household chores,and make life more convenient. This is reflected in the soaring sale of Washing machines,microwaves, Pressure cookers, Mixer grinders, food processors, frozen food etc.

2. Education: People in our society today wish to acquire relevant education and skillsthat would help improve their career prospects. This is evident from the fact that so manyprofessional, career oriented educational centers are coming up, and still they cannotseem to meet the demand. As a specific instance count the number of institutions offeringcourses and training in computers that has opened in your city.

3. Physical appearance: Today, physical fitness, good health and smart appearance are

on premium today. Slimming centers and beauty parlours are mushrooming in all majorcities of the country. Cosmetics for both women and men are being sold in increasingnumbers. Even exclusive shops are retailing designer clothes.

4. Materialism: There is a very definite shift in the peoples cultural value fromspiritualism towards materialism. We are spending more money than ever before onacquiring products such as air-conditioners, cars CD players etc, which adds to ourphysical comfort as well as status.

POSITIVE IMPACT OF CULTURAL CHANGE

In India the retail sector is one of the largest employers after agriculture. But it is highlyfragmented and chiefly consists of small independent, owner managed shops. Newformats like super markets and large discount and department stores have startedinfluencing the traditional looks of bookstores, furnishing stores and chemist shops. Theretail revolution, apart from bringing in positive changes in the quality of life in themetros and bigger towns, is also bringing in slow changes in lifestyle in the smaller townsof India. Increase in literacy, exposure to media, greater availability and penetration of avariety of consumer goods into the interiors of the country, have all resulted in taperingdown the differences of spending between the consumers of larger metros and those ofsmaller towns. However, the supply of quality real estate space would be instrumental in

propelling the future growth momentum of the retail sector in India. The addition ofbetter and affordable retail space would enable retailers to distribute more better-qualityproducts and services to the consumers. For the retail sector to accomplish more growth,the increase of organized retailing has to become a countrywide phenomenon. Thegrowth of the organized retail industry in the country will mean thousands of new jobs,increasing income levels and living standards, better products, and services, a bettershopping experience, and more social activities.


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The retail sector in India is undergoing substantial growth and development, driven by

the impact of rising incomes, increasing urbanisation, low interest rates, greater brandcompetition and a youth-driven culture. Retail sales grew by 10.5% in rupee terms in2005, equivalent to a volume rise of 6%. Retailing is undergoing a structural shift inIndia, as supply slowly moves from small, family-run shops to larger, organised retailoutlets. The rising number of attractive stores and foreign brands, coupled with readilyavailable credit, will support steady real growth in retail sales of 7.2% a year between2006 and 2010.

Income growth and structural changes will fuel growth

Apart from steady income gains, consumer financing has become a major driver in the

consumer durables industry. In the case of more expensive consumer goods, such asrefrigerators, washing machines, colour televisions and personal computers, retailers arejoining forces with banks and finance companies to market their goods moreaggressively. Among department stores, other factors that will support rising salesinclude a strong emphasis on retail technology, loyalty schemes, private labels and thesubletting of floor space in larger stores to smaller retailers selling a variety of productsand services, such as music and coffee.

Organised retailing will expand sharply

Organised retailing is relatively new to India, although it has begun to expand rapidly. As

with other consumer-oriented goods and services, this sector should benefit from risingwealth, industry deregulation and a greater openness to international influences. Perhapsonly 3% of retail sales in India are accounted for by organised retailers. By 2010,however, the organised sector could account for as much as 20% of the total retail sector,based on current trends. At present, around 96% of the more than 5m retail premises ofall types in India are smaller than 50 sq metres. Yet this is beginning to change. Shoppingmalls are becoming increasingly common in large Indian cities, and developers haveplans to add hundreds of new malls over the next three years. Although not all of theseplans will be realisedand many of the new malls will be much smaller than theirWestern counterpartsIndian consumers will have a far larger number of attractive,comfortable, brand-conscious outlets in which to shop.Competition from the traditional retail sector will continue to be a major issue forinternational firms entering the Indian market, whether directly at the wholesale level orindirectly through local firms. Traditional shops are mostly owner-operated, have lowlabour and property costs, and generally pay little or no tax. New entrants to theorganised retail sector will also face higher labour and property costs than traditionalfirms and must bear the additional expense of back-up power supplies. Otherimpediments include high intermediation costs, expensiveand often inadequate


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supply-chain infrastructure, inflexible labour laws, complicated property codes, multiplelicensing requirements and a shortage of skilled managerial staff.Retailers will target affluent and well-off householdsGDP per head in India was about US$730 in 2005 (at market exchange rates), but thisfigure disguises wide variations across social strata and between regions. There were

nearly 13m households (6.4% of the total) with an annual income of more than US$5,000in 2005. These households already own a wide variety of consumer goods, including cars,and constitute India's most sought-after consumers. Apart from these relatively wealthyIndians, 34m households (16.5% of the total) had annual incomes of US$3,000-5,000.These "well-off" households can afford, and many already own, airconditioners, washingmachines, refrigerators, colour televisions and motor scooters. This segment, which isincreasingly brand-conscious, is the target market for the rapidly growing organised retailsector in India.

The food and groceries sector has strong growth prospects

The greatest opportunities for retail sales growth are likely to be in the food and groceriessector. Modern retailinginvolving large shops and supermarketsconstitutes less than1% of the total food-retailing sector. The rest is composed of traditional kiosks and smallshops. Indian food retailing is, however, moving inexorably towards the supermarketformat, and consumers in the affluent, upper-income segment are attracted to brandnames, variety and convenience. Other sectors that are likely to see growth includeconsumer durables, information technology (IT), home improvement, and health andbeauty. A more sophisticated front-end retail infrastructure will also create more demand.India's biggest retailer, Pantaloon, plans to increase its 300,000 sq metres of retail spaceto 1m sq metres by end-2007, enabling it to expand its Pantaloon department stores aswell as its Big Bazaar hypermarkets and Food Bazaar supermarkets. India's biggestprivate-sector company, Reliance Industries, has ambitious plans to enter the retail sector.The company is thought to be considering investment of Rs100bn (US$2.2bn) over thenext two years to establish more than 1,500 outlets across the country employing400,000-500,000 people.Increasingly, local manufacturers and wholesalers are establishing retail outlets in a bidto ensure higher margins. This has been especially true of retailers in the IT sector, wheregrowth is likely to be robust. Zenith of the US, Acer India (Taiwan) and a local company,HCL Infosystems, have all set up retail outlets across India, with more locations planned.New product development and relatively inexpensive financing are fuelling the trend.Existing local IT distributors and wholesalers are also expanding into the retail sector.

Foreign investment will play a bigger role in retailing

The opening of the retail sector to foreign direct investment (FDI)a policy change thatwould alter radically the face of the Indian economyis happening slowly. SinceFebruary 2005 the government has taken several liberalising steps, but it continues todisallow FDI by retailers of multiple brands, keeping out the big hypermarket groups anddiscounters. This is a carefully crafted decision designed to cause minimum politicaldamage domestically, while showing foreign investors that liberalisation remains on


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track. Foreign firms will continue to lobby for liberalisation and have cited the restrictionon FDI as a factor limiting future growth. Their options should multiply as food importsare liberalised and import duties come down. The government will also need to reformreal-estate laws and restructure tax regimes further if it is to attract international retailers.Wal-Mart of the US will continue its high-profile campaign to open up India's retail

sector to foreign companies. Tesco of the UK and Carrefour of France are also sizing upthe Indian market. Wal-Mart argues it would use local producers not only for its Indianoperations, but also for its global network as this could increase India's exports. Asdomestic companies expand into the organised retail sector, the pressure on thegovernment to open the sector to foreign investment is likely to increase on competitiongrounds. Some domestic companies, such as Reliance Industries, are confident that theirfamiliarity with the numerous business operating difficulties in India would give them adistinct competitive advantage over foreign companies.

India tops the annuallist of most attractive countries for international retailexpansion, according to AT Kearney's Global RetailDevelopment Index 2006

The $270-billion Indian retail market is growing at the rate of 13 per cent andthe organised segment grew nearly 48 per cent in 2006 at prevailing prices

Projected growth rate for the organised segment is about 40 per cent for year2007 and with major global players and Indian corporate houses entering the fray, thisgrowth is likely to touch 45 per cent per annum over the next three years

At 2003-04 constant prices, the size of the organised retail market is expected tobe in excess of Rs 200,000 crore ($45 billion) by year 2010, which will make itscontribution to total retail sales about 15 per cent. Currently, only 4.6 per cent of themarket is organised.

Food and grocery retail is by far the single largest block, estimated to be worthRs 743,900 crore ($168 billion) at the moment, more than 99 per cent of this segmentis claimed by kirana stores

The significance of rural retailing as a formidable segment cannot be lost on anyplayer looking for organic growth. The urban-rural split in consumer spending is 9:11.Of the estimated $270-billion Indian retail market, almost half lies in rural India

According to recent studies conducted by National Council of AppliedEconomic Research (NCAER), rural India is home to 720 million consumers spreadacross 627,000 villages

Of course, India will have to arrive at its unique formats of retailing in order totap the market optimally, but successful global models and time-tested practices can be

studied to assimilate and adapt indigenously An FDI Confidence Index survey done by AT Kearney, retail industry is one ofthe most attractive sectors for FDI (foreign direct investment) in India and foreign retailchains would make an impact circa 2003.

Greater availability of quality retail space with increase in organised retail

An estimated 100 million square feet of quality shopping centre space by 2007-08; to generate retail sales of over Rs 50,000 crore ($11 billion)


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Concurrent with the growth in organised retail, the present two square feet-per-capita retailing space will rise 15-20 per cent by 2010

By 2010 about 300 million square feet of additional retail space likely tobe generated

Mall development has been steady currently, there are about 200 operational

malls (including some on the verge of completion), and this number is expected to riseto almost 600 by the year 2010. Of the new malls coming up, 40 per cent areconcentrated in the smaller cities

According to an ICICI study, malls are estimated to become a Rs 38,447-crore($8.3 billion) sector by 2010

Space for 15,000+ new outlets, 100 hypermarkets, 500 department stores and2,000 supermarkets

Organised retailing in small-town India is growing at 50-60 per cent a year,compared to 35-40 per cent in the large cities


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NEGATIVE AFFECT OF CULTURE

India's consuming class

Table IEstimated households by

annual income

Table IIStructure of the Indian consumer market (1995-96)

Annual income(in Rupees) at1994-95 prices

No. ofhouseholds(in million)

Annualincome

(in Rupees)at 1994-95

prices

Classification

Number of households(in million)

Urban Rural Total

215,000 The rich 0.8 0.4 1.2

Total no. of households: 164.9

million Total no. of households 46.6 118.2 164.8

Source: National Council of Applied Economic Research (NCAER). The abovepresentation has been slightly modified by IndiaOneStop.Com

Data on income distribution of households is insufficient in determining marketsize for different consumer products in India. This is because of the lack ofhomogeneity of the consuming class and the varying prices of a single product indifferent parts of India. For example, vegetables generally cost more in Mumbai

than in Calcutta, hence vegetable-purchasing power for identical income groupswould be different in the two places even though they are the two biggest cities inIndia with comparable populations. In other words, purchasing power is location-specific, not income specific. Consumption habits of households are thereforebetter determinants of consumer market size than income distribution. Of course,other factors are also to be considered and they are detailed below.
http://www.indiaonestop.com/home2.htmhttp://www.indiaonestop.com/home2.htm


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While determining market size for a consumer product, the structure of theconsuming class as seen in Table II above, can be both revealing as well asmisleading depending on the kind of product. For example, any specific

consuming class would be fit to be a market for consumer products like tea orsoap, but a product such as vacuum cleaners would find market largely only in the"consumers" and "rich" segments of the market as defined in Table II above.Furthermore, even this may not be correct, because a taste for a vacuum cleaner isnot necessarily a function of purchasing power but of culture and/or taste as well.

Identifying a plausible market size for a consumer product is therefore ahazardous task in a heterogeneous country like India. Yet, the marketer needssome data to come as close to the real picture as possible. For this purpose, it canbe cautiously assumed that purchasing power is proportional to income despitevariables such as location, taste etc. Companies are therefore advised to plan their

consumer product marketing strategies on an area-by-area basis, rather than on anall-India basis.

Income data is insufficient. Therefore, it must be supplemented by product-specific information regarding its existing stock in the marketplace (in the case ofconsumer durables) and existing rate of purchases.

It is also advisable to further refine the plausible market size by taking intoaccount details based on social, cultural and demographic factors.

Marketing a super-premium product such as a Rolex watch is relatively easy. Just

go for the income class above Rs. 106,000 per annum (in 1995-96) as per Table Iabove. This class, Table I shows, comprises 5.8 million households. But theproblem lies in the fact that the 5.8 million households are spread all over India.

The prime market for consumer products in India is aware of the cost-benefit, orvalue for money, aspect. Their convept of value incorporates socio-culturalbenefits in addition to product utility. For example, many households in the"consumers" class and the "rich" class (as defined Table II) may have twotelevision sets, but both the sets may not be top-of-the-line. Thus, while they maybe demand for an additional TV set in many households in the two mentionedclasses, it must not be mistaken as demand for the higher priced TV models. The

prime consumer market in India therefore is not a market for absolute premiumproducts, but for something between the "high end popular brands" to the"premium brands."

The class described in the previous paragraph is actually the "consumers" classdefined in Table II. This class comprises 33.5 million households as at 1995-96and it owned and 'consumed' most of the expensive consumer products such asrefrigerators and washing machines as well as premium expendables. At 1994-95


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prices, their annual household incomes ranged between Rs. 45,000 and Rs.215,000 (to calculate the latest income statistics, use an annual inflator of 5 percent). In addition to this class, the "climbers" and "aspirant" classes (defined inthe Table II) totaling 23.9 million households in urban India, also have the socio-cultural traits of the "consumers" class and, with time, will join the consumers

class. Medium-to-long-term marketing strategy must therefore aim at the aspirantsand the climbers as well. This is based on the safe assumption that, except for thedestitute class as defined in Table II, the other classes are on the way to the nexthigher class. For companies with long-term marketing plans in India, the"consumers" (urban + rural), "climbers" (urban only) and "aspirants" (urban only)classes can be clubbed together to give a market size of around 57 millionhouseholds which can be said to be the "prime segment" of the Indian consumermarket. This becomes even more true as consumer financing and the credit cardculture picks up. Fine-tuning between the classes is of course important, asexplained in the next paragraph.

All of the above may be confusing, but the marketing strategist has to live with itbecause that's how the Indian consumer market is in reality. There is hardly acharacteristic that applies across the market. Hence, the term "Indian consumermarket" is a misnomer: it would be more accurate to describe it as a collection ofdifferent consumer markets.

Even though India has well over 5 million retail outlets of all sizes and styles (ornon-styles), the country sorely lacks anything that can resemble a retailing industry inthe modern sense of the term. This presents international retailing specialists with agreat opportunity.

Retailing in India is thoroughly unorganised. There is no supply chainmanagement perspective. According to a survey b y AT Kearney, an overwhelmingproportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only aRs. 20,000 crore segment of the market is organised.

As much as 96 per cent of the 5 million-plus outlets are smaller than 500 squarefeet in area. This means that India per capita retailing space is about 2 square feet(compared to 16 square feet in the United States). India's per capita retailing space isthus the lowest in the world (source: KSA Technopak (I) Pvt Ltd, the India operation ofthe US-based Kurt Salmon Associates).

Just over 8 per cent of India's population is engaged in retailing (compared to 20per cent in the United States). There is no data on this sector's contribution to the GDP.

From a size of only Rs.20,000 crore, the ORGANISED retail industry will growto Rs. 160,000 crore by 2005. The TOTAL retail market, however, as indicated abovewill grow 20 per cent annually from Rs. 400,000 crore in 2000 to Rs. 800,000 crore by2005 (source: survey by AT Kearney)


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Given the size, and the geographical, cultural and socio-economic diversity ofIndia, there is no role model for Indian suppliers and retailers to adapt or expand in theIndian context.

The first challenge facing the organised retail industry in India is: competition

from the unorganised sector. Traditional retailing has established in India for somecenturies. It is a low cost structure, mostly owner-operated, has negligible real estateand labour costs and little or no taxes to pay. Consumer familiarity that runs fromgeneration to generation is one big advantage for the traditional retailing sector.

In contrast, players in the organised sector have big expenses to meet, and yethave to keep prices low enough to be able to compete with the traditional sector. Highcosts for the organised sector arises from: higher labour costs, social security toemployees, high quality real estate, much bigger premises, comfort facilities such as air-conditioning, back-up power supply, taxes etc. Organised retailing also has to cope withthe middle class psychology that the bigger and brighter a sales outlet is, the more

expensive it will be.

The above should not be seen as a gloomy foreboding from global retailoperators. International retail majors such as Benetton, Dairy Farm and Levis havealready entered the market. Lifestyles in India are changing and the concept of "valuefor money" is picking up.

India's first true shopping mall complete with food courts, recreation facilitiesand large car parking space was inaugurated as lately as in 1999 in Mumbai. (this mallis called "Crossroads").

Local companies and local-foreign joint ventures are expected to moreadvantageously positioned than the purely foreign ones in the fledgling organisedIndia's retailing industry.

These drawbacks present opportunity to international and/or professionallymanaged Indian corporations to pioneer a modern retailing industry in India and benefitfrom it.

The prospects are very encouraging. The first steps towards sophisticatedretailing are being taken, and "Crossroads" is the best example of this awakening. Moresuch malls have been planned in the other big cities of India.


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The future is not so smooth for the retail industry. A number of important issues need tobe addressed suitably to foster the further growth of the retail sector. These aresummarized as follows-

1. Security of these malls need to be strengthen as any given point of time thousandsof people are present at these malls.

2. An overall change is to be bringing in the mind set of the retailers. They must findout the way to satisfy the consumers.

Retailers need to study the consumer behavior more cautiously and relate their effortsaccording to that.

One of the leading threats to retailers, of both Indian and mixed capital, is shrinkage. Inmore mature markets, shrinkage typically ranges from 1-2% of Cost of Goods Sold(COGS). In India, the metric is estimated to be much higher. Supply chains are not at themercy of the inherent weaknesses of Indias infrastructure and distribution networks.They are also vulnerable to the officials who oversee infrastructure operations and to any

other individual with whom goods come into contact. An example of this is the practiceof transport companies that are hired because they have family links to the key officialwho controls the state border crossings. Kroll investigated one company who used thistactic to dramatically reduce the transit time from the south of India to Delhi from threedays to one and a half. Other sources of shrinkage include: short-weighing, pilferage,insecure vehicles, and poor product handling, all producing losses to be covered by theretailer.

Tracing shrinkage is an enormous challenge. Given that most transactions are stillhandled on paper-based systems, the audit trail for the movement of goods is oftenimpossible to follow. Large retailers reveal that they have not been able to achieve any

more success than their smaller competitors when it comes to combating shrinkage.

An important source of shrinkage originates from within the retailer, i.e. its employees.Amid widespread poverty, significant loyalty to a faceless corporation of apparentlylimitless wealth is unlikely. Countering this demographic reality are good practices thatlarge retailers can employ such as background checks on all levels of staff and theconstruction of a strong, identifiable and magnanimous business culture.

Despite Indias reputation for churning out high caliber professionals, there is a shortageof managerial talent at the top of the Indian retail sector. Stories abound of unprofessionalmanagement, even among some of the biggest names in the country, probably becausemany major Indian retailers began as family businesses. Like many family run companiesaround the world, the prize C-suite positions in Indian retailers are reserved for familymembers and close friends. The absence of meritocracy prevents the hiring ofexperienced managers or the promotion of able mid-managers. The lack ofprofessionalism, mixed with family politics leads to under-performance and unsupervisedfraud and waste. One un-named Indian retailer revealed that they had not measured stockin several years.


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As with every other Indian sector, any new retailer must navigate the maze of regulatoryinterference. Regulations require upwards of 30 license approvals, and any licenseapproval in India is subject to abuse. At the political level, local strong-arm partiesfrequently demand employment for members. Large retailers entering the market wouldbe perceived as a significant threat to the traditional way of life in some areas. This,

combined with populist, aggressive political leaders and strong unionization, couldprovoke physical risks to high profile investors and managers.

impact of cultural change in retailing

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