A Study of Organized Retailing in India

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A Study of Organized Retailing in India

Which business considers every individual as a customer? Which business accounts for less than 10% of the worldwide labour force and is still the single largest industry in most nations? What is common between Wal-Mart, Amazon, and the small Kirana stores that dot your neighborhood?

The answer is retailing, the last link in the chain of production, which begins at the extractive stages, moves through manufacturing, and ends in the distribution of goods and services to the final consumer.

Often people think of retailing only as the sale of products in stores, but retailing also involves the sale of services: overnight lodging in a motel, a doctor’s exam, a haircut, a DVD rental, or a home-delivered pizza.

 Retail-which literally means to put on the market, is a very important aspect of every city. Without a well-organized retail industry, we would not have our necessities and luxuries fulfilled. Be it our daily groceries or fashion accessories and everything in between, retail industry brings us the blissful experience of shopping. Though organized retailing industry began much earlier in the developed nations,Indiahad not actively participated. However, with its vast expanse and young population,Indiain the 21st century emerges as a highly potential retail market.

Indian retail industry is going through a transition phase. Most of the retailing in our country is still in the unorganized sector. The spread out of the retails in US andIndiashows a wide gap between the two countries. Though retailing inIndiais undergoing an exponential growth, the road ahead is full of challenges. In the present paper an effort has been made to study retailing, retail formats inIndia, Organized retailing and major players in organized retail inIndia. Also effort has been made to study benefits of organized retailing inIndiaand Challenges of Retailing inIndia.

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1 Introduction

1.1 Concept of Retailing

1.1 WHAT IS RETAILING

Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use. Often people think of retailing only as the sale of products in stores, but retailing also involves the sale of services: overnight lodging in a motel, a doctor’s exam, a haircut, a DVD rental, or a home-delivered pizza.  Not all retailing is done in stores.  Examples of nonstore retailing include Internet sales of hot sauces, the direct sales of cosmetics byAvon, and catalog sales by L.L. Bean andPatagonia.

1.2 A Retailer’s Role in a Distribution Channel

A retailer is a business that sells products and/or services to consumers for their personal or family use.  Retailers are the final business in a distribution channel that links manufacturers to consumers.  A distribution channel is a set of firms that facilitate the movement of products from the point of production to the point of sale to the ultimate consumer.  Exhibit 1-1 shows the retailer’s position within a distribution channel.[1]                                                                             Exhibit: 1-1

Source: Levy, Weitz, Pandit, Retailing Management, Tata McGraw Hill Education Private Limited, New Delhi, Sixth edition, 2008

Manufacturers typically make products and sell them to retailers or wholesalers.  When manufacturers like Ralph Lauren and Dell sell directly to consumers, they are performing both production and retailing business activities.  Wholesalers buy products from manufacturers and resell these products to retailers, and retailers resell products to consumers.  Wholesalers and retailers may perform many of the same functions, but wholesalers satisfy retailers’ needs, whereas retailers direct their efforts to satisfying the needs of ultimate consumers.  Some retail chains, like Home Depot and Office Depot, function as both retailers and wholesalers from bharati vidyapeeth.  They’re performing retailing activities when they sell to consumers and wholesaling activities when they sell to other businesses, like building contractors or small business owners.

In some distribution channels, the manufacturing, wholesaling, and retailing activities are performed by independent firms, but most distribution channels have some vertical integration. Vertical integration means that a firm performs more than one set of activities in the channel, such as investments by retailers in wholesaling or manufacturing.  Backward integration arises when a retailer performs some distribution and manufacturing activities, such as operating ware houses or designing private label merchandise.  Forward integration is when a manufacturer undertakes retailing activities, such as Ralph Lauren operating its own retail stores.

For example, most large retailers – such as Safeway, Wal-Mart, and Lowe’s – engage in both wholesaling and retailing activities.  They buy directly from manufacturers, have merchandise shipped to their ware-houses for storage, and then distribute the merchandise to their stores.   Other retailers, such as The Gap andVictoria’s Secret, are even more vertically integrated.  They design the merchandise they sell and then contract with manufacturers to produce it exclusively for them.

1.3 Functions Performed by Retailers

Why are retailers needed?  Wouldn’t it be easier and cheaper to buy directly from companies that manufacture the products?  The answer is generally no.  Although there are situations in which it is easier and cheaper to buy directly from manufacturers, such as at a local farmer’s market or from Dell Computer, retailers provide important functions that increase the value of the products and services they sell to consumers and facilitate the distribution of those products and services for those who produce them.  These value-creating functions are

  • Providing an assortment of products and services
  • Breaking bulk
  • Holding inventory
  • Providing services

1.3.1 Providing Assortments

            Supermarkets typically carry 20,000 to 30,000 different items made by over 500 companies.  Offering an assortment enables their customers to choose from a wide selection of brands, designs, sizes, colors, and prices at one location.  Manufacturers specialize in producing specific types of products.  For example,Campbell’s makes soup, Kraft makes dairy products, Kellogg makes breakfast cereals, and McCormick makes spices.  If each of these manufacturers had its own stores that only sold its own products, consumers would have to go to many different stores to buy the groceries needed to prepare a single meal.

All retailers offer assortments of products, but they specialize in the assortments they offer.  Supermarkets provide assortments of food, health and beauty care, and household products, while Abercrombie and Fitch provides assortments of clothing and accessories.  Most consumers are well aware of the product assortments retailers’ offer; even small children tend to know where to buy different types of products.  But new types of retailers offering unique assortments appear each year, such as Play It Again Sports (used sporting goods), Auntie’s Beads, and PODs (portable, on-demand storage service).

1.3.2 Breaking Bulk To reduce transportation costs, manufacturers and wholesalers typically ship cases of frozen dinners or cartons of blouses to retailers.  Retailers then offer the products in smaller quantities tailored to individual consumer’s and households’ consumption patterns.  This is called breaking bulk.  Breaking bulk is important to both manufacturers and consumers.  Whereas it is cost effective for manufacturers to package and ship merchandise in larger, rather than smaller, quantities, consumers want to purchase merchandise is smaller, more manageable quantities.

1.3.3 Holding Inventory         A major function of retailers is to keep inventory that is already broken into user-friendly sizes so that products will be available when consumers want them.  Thus, consumers can keep a smaller inventory of products at home because they know local retailers will have the products available when they need more.  By maintaining an inventory, retailers provide a benefit to consumers; they reduce the consumers’ cost of storing products.  This is particularly important to consumers with limited storage space and who want to purchase perishable merchandise like meat and produce.

1.3.4 Providing Services:-Retailers provide services that make it easier for customers to buy and use products.  They offer credit so consumers can have a product now and pay for it later.  They display products so consumers can see and test them before buying.  Some retailers have salespeople in stores or use their Web sites to answer questions and provide additional information about products.

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