From Traditional Markets to Shopping Malls

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Last updated: October 9, 2019

From Traditional Markets to Shopping Malls… A paradigm shift Abstract A new idea whose time has come when arrives cannot be bunged by anyone. Especially when it proposes an essentially finer monetary and behavioral value scheme to its clientele, it gradually takes over the old way, and other stakeholders have no option but to acknowledge and transform accordingly. Modern retailing is one such inevitable reality which has started taking a spin in the traditional retail scenario and is soon liable to capture the retail sector and further enhance its compass.

All elements in the delivery chain better accept it and prepare, rather than trying to rob the customers of a superior way of life by promulgating fallacy and protecting vested interests. The question which then arises in the face of this foreseeable change is the future of the traditional outlets (Kiranas) with a network so intense that most of us have a kirana store within five minutes of our residence. The kiranas also operate on a low-cost model with family-owned properties (an extension of the house), with most of the family working in the store itself.They cater to impulse needs at short notice, and early opening and late closing times which suit many families. The supermarkets on the other hand propose an elite ambience with economy for all sectors of the society. This paper deals with the dilemma of calling this confrontation – competition or conflict? Both rivalries have competitive advantages. The kirana will have a low cost structure, convenient location and customer intimacy. Modern trade large outlets will have product width and depth, disintermediation and technology.

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Like in any competitive market, the smartest survives and the consumers win. Indian retailing is unorganized and due to its feudal structure and inefficiency need for Organized Retailing is being felt day by day. Organized retailing not only provides better customer services but also facilitates easy and smooth handling for the government. At the same point of time if FDI is also approved in Indian Retailing, it would not only streamline the retailing of India, but would further accelerate expansion of markets.

There is enormous scope for foreign players in Indian economic conditions, and if some how FDI be extracted it would supplement not only the customers by better services but also the government by capital inflow, generating employment and by becoming big source of tax revenue. The transformation…… In the last five years (2001-2006) Indian retailing industry has seen exceptional augmentation. Where the country was in the dominance of unorganized retailing the organized retailing sector has now emerged in a momentous way and is contributing significantly to the growth of Indian retail sector.

It is predicted that organized retail will form 10% of total retailing by the end of this decade (2010). Cultural and regional disparity in India is the major challenge in the face of retailers. Due to this factor the retailers in India are deterred from adopting a distinct retail format. And so there is a scope for a variety to formats to co-exist in India. The graph above shows the comparison of how organized retail sector has penetrated various countries around the globe. We can see that India has the lowest share in the organized retail sector as compared to other countries.And hence the scope for its growth in the coming years is imperative.

The urban section of the country is witnessing a major growth in organized retailing. Almost 85% of the growth is in this sector. And out of this more than 60% of the development is in the metros.

The southern part of the country is observing a faster growth rate than the northern states. The total retail market in south India is $94 billion and of this organized retail is $8. 5 billion. In southern part of India the organized retail market growth is estimated as 35 per cent per annum.There has been a magnanimous increase in the entrants in the organized retailing sector.

Where Reliance Industries Limited plans to invest US$ 6 billion in this sector by opening 1500 supermarkets and 1000 hypermarkets, Bharti Telecoms is planning a joint venture worth ? 750 million with Tesco a global retail giant. Pantaloons too are planning to invest US$ 1 billion in order to increase its retail space to 30 million square feet. Such colossal stashing of funds in one particular sector promises a quick growth in the coming years.

Global retail giants are also inflowing the retail industry in India. Names like Wal- Mart, Tesco, Carrefour SA, Metro AG etc would soon find significant places in the Indian retail scenario. Tier II cities are no longer behind in the race in the development of retail space specially the malls. The government of states like Delhi and National Capital Region (NCR) are very optimistic about sanctioning the use of land for commercial development thus escalating the accessibility of land for retail space; thus making NCR provide to 50% of the malls in India.Key players currently operating in the Indian retail industry include Future Group, Trent Ltd, RPG Enterprise, Vishal Retail Ltd, Shoppers Stop Ltd, Bata India Ltd, Provogue India Ltd, Videocon Appliances Ltd. , I. T.

C. Ltd, Godrej Agrovert Ltd, and DCM – Hariyali Kisaan Bazaar. Evolution of Retail Market in India India as a country has the most unorganized retail market. “Kirana stores” the traditional retail outlets work with an age old set up of a shop in the front & house at the back. More than 99% retailers function in less than 500Sq.Ft of area. The producers distribute goods through C & F agents to Distributors & Wholesalers. Retailers happen to source the merchandise from Wholesalers & reach to end-users.

The merchandise price gets inflated to a great extent till it reaches from Manufacturer to End-user. Selling prices are largely not controlled by Manufacturers. The vibrant change in the market that has occurred in the past decade has made retailing probably the hottest area to venture into. There is an elementary budge stirring in the market.

In India Retail Industry has undergone with two different phases and in recent past it is changing at faster speed form traditional Informal retailing sector to modern Formal and Organized Retailing sector. Informal Retailing Sector, consisting of typically small retailers who most of times organize the things through sole proprietorship type of organizations. Due to there small size and lack of capital investment they were mainly suffering from inefficient supply chain management and approximately no monitoring of labor laws.

Even from the government’s point of view, there was enough tax evasion as the tax enforcing mechanism could never be applied over then due to their complex structure. Formal Retailing Sector, consist of large retailers, who generally made available all the consumer goods at one center. They are managed by corporate houses and involves huge capital intake with them. As they are ‘organized’ there is absolute opportunity of application of tax mechanism and it also involves high level of labor usage monitoring. Some leading corporate houses dealing with retail market are: TATA: – Tata Trent, RPG Group: – Food World, Health and Grow etc. ITC: – Wills Life Style, RAHEJAS: – Shoppers Stop, HIRANADANI (HAIKO) & DLF: – DT Cinemas. There are different formats adopted by the corporate bodies such as:- * Dedicated Brand Outlets: – Nike, Reebok, Zodiac etc.

* Multi Brand Outlets: – Vijay Sales, Viveks’s etc. * Outlets of Manufacturer’s/ Exporters: – Pantaloon, Bata, Weekender and Globus etc. * Modern Format Retailers * Traditional Format Retailers FDI in retailing: Indian retailing is unorganized and due to its feudal structure and inefficiency need for Organized Retailing is being felt day by day.Organized retailing not only provides better customer services but also facilitates easy and smooth handling for the government. At the same point of time if FDI is also approved in Indian Retailing, it would not only streamline the retailing of India, but would further accelerate expansion of markets. There is enormous scope for foreign players in Indian economic conditions, and if some how FDI be extracted it would supplement not only the customers by better services but also the government by capital inflow, generating employment and by becoming big source of tax revenue.Retailing in India accounts for over 10 per cent of the country’s GDP and around eight per cent of the employment and is steadily inching its way toward becoming the subsequent boom industry. In the present times Retail and real estate are the two booming sectors of India.

And according to the industry experts, the projection of both the sectors is mutually dependent on each other. Retail, one of India’s leading industries, has currently materialized as one of the most vibrant and quick paced industries of our age with numerous players inflowing the market.As the present-day retail sector in India is mirrored in expansive shopping centers, multiplex- malls and huge complexes offering under one roof – shopping, entertainment and food, the notion of shopping has tainted in provisos of format and consumer buying behavior, escorting in an upheaval in shopping in India. This has also added to large scale investments in the real estate sector with major national and global players investing in mounting the infrastructure and construction of the retailing business.One more plausible feature in the prospects of the retail sector in India is the swell in the young working population.

In India, large pay-packets, nuclear families in urban areas along with increasing working-women population augment prospects in the services sector. These key aspects have been the growth drivers of the organized retail sector in India which now boast of retailing almost all the predilections of life – Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many more.With this the retail sector in India is observing a reconstruction as conventional markets make means for fresh layout such as departmental stores, hypermarkets, supermarkets and specialty stores. Factors supporting the emergence of organized Retail sector: * Increased purchasing power of the customers * Young population as Indian consumers * Shift in the consumption patterns * More Tier-2 cities emerging across the country * Better infrastructure facilities and Improved logistics Hindrances to this emerging trend * The taxations and legislative systems * Barriers to FDI * Supply chain bottlenecks Customer’s preferences as per their social class * Lack of industry status With considerable transformations happening in the Indian retail sector, it will be apt to consider how these transformations will impinge on the Indian consumer. An array of retail formats budding enables the consumers to have numerous alternatives depending on their standard of living. An additional appealing aspect is that the retail density (number of retail outlets /given number of consumers) in the Indian market is growing in contrast with numerous developed markets where the retail density is much lower due to diffusion of modern retailing practices.

If we consider this at a very fundamental level the major contemplation for the retail players is its target customer. The demographic and psychographic factors of the consumer are significant criteria for the planners. In comparison with the US the Big malls cannot have huge stores all over the cities and hence might not be able to cater to the instant needs which the local kiranas suffice.

Regardless of consumers’ lifestyles, the kirana stores would persist to provide regulars as before, possibly with a noteworthy modification in the variety of products reserve.It is noteworthy that a consumer at the upper socio-economic section may procure clothes or some of the fast moving consumer goods through contemporary retailing but would still depend on the kirana stores for categories like vegetables fruits and groceries may be making an occasional premium purchase at the sophisticated mall. In the developed markets where daily essentials might be stocked for a week to avoid traveling for some distance, in India due to the widespread presence of kiranas the daily needs would be purchased from the unorganized retail shops present at every nook and corner.

However discount stores like Subhiksha with their everyday low pricing scenario takes on the battle of the organized with the unorganized to some extent. Using the supply chain provisions these utilitarian stores source the products at an attractive price and transfer the benefits to the consumers. These kinds of stores may command a strong loyalty from the customers as we have a cultural practice on fresh fruits and vegetables and the availability of such products is there even in the urban markets which are quite far from their source. Also the attractive price adds on to the attractiveness of such utility malls.

The presence of these stores in the neighborhood might pose a stiff competition for the kirana stores and not modern retail hypermarkets. But even in this set-up, discount retailing is not sufficient to cover up the complete consuming population, and in most urban and rural areas, the conventional grocer will persist to be imperative for the consumer. However for products like electronic appliances and apparels modern retail formats like Big Bazaar or Shoppers’ Stop will attract consumers from several parts of a city as they may not mind traveling to save on durable products and apparel.The Impact of Location: The contemporary retail stores which deal in FMCGs have to then bring in some form of differentiation and uphold that differentiation to capture the unorganized stores clientele. Having a location based advantage can be rewarding to make sure that it is not within the proximity of a discount store or a supermarket if it wishes to use the rewards of supply chain allied with well-known brands.

In most of the metros there is a cluster of malls in a single location making it difficult for the consumers to associate any specific proposition to any of these stores.Consequently, if a supermarket is to proffer sustained discounts on all its commodities, it has to depend on its supply-chain competencies and also have a massive quantity of sale. Location is an imperative source to draw consumer traffic for such huge volumes for such stores. However this might not hold much relevance for a small neighborhood store where volumes are not very high.

Creating Private Brands A significant opportunity for the large retailers is to develop private brands that can create a proposition of value from the consumer’s perspective. A proven example of this is the Aldi chain in Germany.Almost 95 per cent of the commodities in this chain consist of local brands. Wal-Mart could not budge the strength of this chain due to its strong positioning amongst its buyers who enjoyed the value offered to them though the various brands. This model is often referred to as one of the major causes of Wal-Mart’s failure in Germany. If we look at the Indian market there is colossal capacity existing with the retailers to explore in this area of private branding due to the diverse spread of spending power and generic competition at the lower end of the market.

Product categories like FMCG, Fruits, vegetables which may be bought on daily basis a good quality can draw a premium price from the consumers at the higher end who are not very sensitive to price as compared to quality. This section of consumers wants the best of products and would not hesitate to spend on a private brand which is not well established in the market and would willingly pay a premium price for such brands provided they get a better quality. Thus the option of private branding may be suitable for a organized retailer trying to compete with the local seller catering to the high end consumer.However if we look at the bottom of the pyramid which is a massive consumer section of Indian socio-economic continuum we find the presence of generic competition. There is the reality of minimum wages and a high price sensitivity which makes the consumer balance between his desire to use branded products from well known retailers and his income. For these consumers quality means acceptable level of performance across categories. And hence these consumers may balance their budget by having a trade-off by buying branded commodities across product categories.The consumer may buy a few branded products and compromise in the other product categories for unbranded offerings.

Hence there is a massive potential of developing private labels suitable to the various segments. Big Bazaar has already started developing such private labels with regard to durable categories. However, even with these strategies the organized retailers might not ever be able to have the whole cake as a very significant share of it will remain with the unorganized stores given their location and accessibility advantage.Coming to the Kirana Scenario; with the materialization of modern trade, the anxiety is building on neighborhood kirana stores.

But it’s not the end of the world for them as they are swiftly acclimatizing themselves to the requirements of the new consumer. So they are making positive changes in their stores, buying swipe card machines, recruiting sales people to engage in long hours and providing home delivery even for small ticket items. The situation is cutthroat. Traditional (Kirana) stores need to advance to endure competition.

Long-term survivors will need to implement diverse strategies to discriminate themselves from their organized competitors. The importance of kirana stores is emphasized in the fact that consumers need convenience in retail. The neighborhood kirana store will forever maintain a favorable factor of convenience.

Unlike a developed market where consumers travel some distance for shopping, Indian consumers have the kirana stores to service them on all days, all through the year. Kirana can concentrate on the following factors to compete in this scenario: * Increasing credit for monthly purchases Quick home or phone delivery of small ticket items * Open shops in areas which are beyond the reach of big retailers * Diversifying into sale of SIM cards and mobile phones The biggest dent in the big retailers eating up the small Kiranas is the reach of kirana stores to the customer for his daily individual needs. Who would travel to a mall for a loaf of bread or a bar of soap? Benefits of development of organized retailing in India * Employment Creation: Organized retail market boom is anticipated to generate the much needed mass employment in India.This would ensure the development of India’s second and third tier cities to international standards. many professionals like real estate dealers, builders, architects, display designers, retail shop managers and workers like sales persons, security etc are likely to get employment due to development of world class retail shops.

* Small business development: Mega malls mushrooming in and around the cities give rise to upcoming of small businesses near such malls providing services to a large number of shoppers visiting the malls. * Economic growth: The organized sector will contribute to the economy in terms of GDP and employment generation New Opportunities: Rural and small units can find a ready market for their products and thus generate income and get private brand equity for their products. Large retailers would depend on the unorganized manufacturing sectors and small units for their successful in sourcing cost-effective goods for supply through their retail outlets.

* Income generation: Many women, household workers, artisans and small scale business operators can become a part of the supply chain by enhancing their skills to bring about quality consciousness and increase their real time incomes.Eradicating the middle operators these working groups will be getting better remunerations and there will be a significant improvement in their standards of living. * Development in the infrastructural facilities: There will be augmentation in transport facilities required for providing goods and services for the retail outlets. It will help our farmers to get the product to market place in time. The supply chain can again offer prospects for a horde of manufacturing, trading, and services. Air, road and rail transport is going to profit from this.Quite a few of domestic airlines are now increasing their cargo services considerably to meet the requirements of this sector. * Improved Inventory Management systems: Big retailing requires a well managed inventory system.

The finest practices accessible in the world in this field would come into the country with the coming of players like Wal-Mart in the logistics of retail marketing. * Wider market for consumer durables: Products like mobiles, washing machines, refrigerators, television, air conditioners etc would find a wider platform to present their products on. Direct benefits to the consumers: Consumers would get wider choices of products and cheaper prices. This will augment consumption rate and will ultimately create more employment and wealth. The local retailers will start offering enhanced discounts to capture maximum consumer sections. Customer satisfaction would enhance through value added services like online shopping, home delivery through web portal and ability for better comparison of products.

* Education scenario: Growth in the organized retailing has enhanced the education set-up in the country.A new area of education has emerged in the name of retail management. While retail giants inflowing there are many prospects opening up in the educational sector. To face this expected talent shortage higher educational institutions have started introducing new courses. Retail career area includes store operation, supply chain management, human resource management, entrepreneurship, IT, sales etc. * Elimination of middlemen: Budding organized food retailing in India will bring momentous change in the agribusiness management. The supermarket and fresh food outlet showrooms will procure directly from the farmers.Farmers are likely to get better prices for their products as these mega retailers are likely to acquire their farm products directly from the farmers.

Many of the middle men would be eliminated. * Shopping experience: The emergence of malls and supermarkets has given fashion and festivals a new face in the country. They have become an entertainment hub for families and friends to celebrate special occasions. * E-tailing: Retailing is now moving towards e-tailing with Retail showrooms will start offering multi channel online retailing facility.

The Indian society will soon shift to purchase product and services online in a large amount.The online shopping destinations like eBay, Amazone comparison shopping portals like froogle and shopping. com will be more popular in Indian community. New domestic e-commerce retailers will be born. The other side of the coin: With almost 25% of India living below the poverty line the fruits of the development and organized retailing might result in a social dissatisfaction amongst the lower side of the population. With almost 40 million people in India depending on the traditional retail sector, the trade unions and traders fear these people’s employment will suffer if retail giants are permitted to enter India’s retail market.

Most of the employment opportunities that promise to create are for the semi skilled and unskilled labors this is not useful for majority of highly educated Indian youth. Due to delay in processing and corrupted middle players of government employees, the benefits of the elimination of middlemen are not reaching to the real farmers. The coming of the big players in the retail market would be a threat for the friendly neighborhood kirana stores. The personal touch one used to get from the service of kirana stores would be missed in these sophisticated shopping giants.The life style of the community would change. Food consumption patterns are already seeing a major change as fast foods and junk foods are replacing the more nutritional conventional foods. Whole sale commodity markets would disappear and there would be considerable job loss.

The inevitable journey to plain cultural homogeneity started with globalization would be speeded up. Local products would go off the shelf and more popular products would take its place. Challenges of Retailing in India The retail industry in India has to face many obstacles before becoming a truly flourishing industry Competition from unorganized sector.

* In retail sector, Automatic approval is not allowed for foreign investment. * Taxation, which favors small retail businesses. * Developed supply chain and integrated IT management is absent in retail sector. * Lack of trained work force. * Low skill level for retailing management. * Intrinsic complexity of retailing- rapid price changes, threat of product obsolescence and low margins. * Organized retail sector has to pay huge taxes, which is negligible for small retail business.

Competition or conflict! The question to be deliberated upon now is whether we take this confrontation as a competition or a conflict? India is a price sensitive market. And in such a scenario the question which arises is that can the ambience and shopping experience of shopping malls beat the ‘kirana’ stores? Do you see this competition moving beyond just a price war? Looking at the situation from a different perspective ‘Kirana’ stores target the masses whereas organized retail services cater to a specific class of people.It would be unfair to apply the same rules at both places, when they cater to two different sets of people. The mall going consumers are more or less global, that is, they have moved from price to value. This section is more value conscious, as they will buy the most exclusive item, and concurrently will want to acquire the finest price for it. A price conscious consumer, alternatively, will look at price alone and choose a product which is the cheapest.

The consumer’s taste and choice are becoming global. Even the food cooked in their households need ingredients which is available only in the supermarkets.On the other hand as the options increase, consumers will demand extra and constraint of space will become a problem for the ‘kiranas’. Possibly, what will come about is that the generalized retailer will convert into a specialized one. We can presume that the ‘kirana’ store will be around for the next 3-4 decades easily, as it is the neighborhood store and convenience works in its favor. It also has two channels to buy from – traditional suppliers and hypermarkets. So to conclude, we can say that the ‘kiranas’ might have a layout and product threat, but not under any usiness threat.

Where the prices are concerned, a consumer is motivated to buy more quantity of the goods and there is an immense scope for impulsive shopping in the organized retail shops. Eliminating the impulse shopping factor a consumer saves money in the supermarkets as they offer best prices, however that is not what happens. The consumers more or less end up doing an impulse purchase in the alluring set up of these stores. Competition amongst these two setups will in fact help expand the organized retail market. And of course the consumers will take the final call. ConclusionThe paper tries to present the fast approaching retail boom scenario likely to happen sooner than later.

The impact of the same on the Indian Traditional retail outlets is discussed with the likely positive and negative impact of this revolution. Where the organized sector poses a cut-throat competition for the kiranas the fact still remains that India being a country with diversified social classes there is a scope for both to survive. The emergence of a developed retail sector will pose a competition rather than a threat to the traditional stores which would help these stores change their outlook and ways of working.As it is said the best one survives in the war- and this is not a conflict but a golden opportunity of co-survival where winner is only the CONSUMER. Reference and guidance: 1) Berman B and Evans J R- Retail Management (Pearson Education, 2002. ) 2) Michael Lervy M and Weitz B W- Retailing Management (Tata McGraw-Hill, 2004) 3) Newman A J and Cullen P- Retailing: Environment and Operations (Vikas, 2002) 4) Varley R and Rafiq M- Principles of Retail Management (Palgrave, 2004)

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