RETAIL IN INDIA-EMERGING CHALLENGES
INTRODUCTION:The India Retail Industry is the largest among all the industries, accounting for over 10 per cent of the country’s GDP and around 8 per cent of the employment. The Retail Industry in India has come forth as one of the most dynamic and fast paced industries with several players entering the market. But all of them have not yet tasted success because of the heavy initial investments that are required to break even with other companies and compete with them. The India Retail Industry is gradually inching its way towards becoming the next boom industry.
The total concept and idea of shopping has undergone an attention drawing change in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. Modern retailing has entered into the Retail market in India as is observed in the form of bustling shopping centers, multi-storied malls and the huge complexes that offer shopping, entertainment and food all under one roof.
A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing workingwomen population and emerging opportunities in the services sector are going to be the key factors in the growth of the organized Retail sector in India. The growth pattern in organized retailing and in the consumption made by the Indian population will follow a rising graph helping the newer businessmen to enter the India Retail Industry.
In India the vast middle class and its almost untapped retail industry are the key attractive forces for global retail giants wanting to enter into newer markets, which in turn will help the India Retail Industry to grow faster. Indian retail is expected to grow 25 per cent annually. Modern retail in India could be worth US$ 175-200 billion by 2016. The Food Retail Industry in India dominates the shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7 billion business, growing at over 20 per cent per year. The future of the India Retail Industry looks promising with the growing of the market, with the government policies becoming more favorable and the emerging technologies facilitating operations.
Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer. Indian retailers need to advantage of this growth and aiming to grow, diversify and introduce new formats have to pay more attention to the brand building process. The emphasis here is on retail as a brand rather than retailers selling brands. The focus should be on branding the retail business itself. In their preparation to face fierce competitive pressure, Indian retailers must come to recognize the value of building their own stores as brands to reinforce their marketing positioning, to communicate quality as well as value for money. Sustainable competitive advantage will be dependent on translating core values combining products, image and reputation into a coherent retail brand strategy.
EMERGING CHALLENGES FOR RETAIL IN INDIA:
Indian Retail Industry is going to face many challenges in terms of Political, Economic, Socio-Cultural, Technical in the recent period. The major Challenges that the industry is facing are
High Cost of Real Estate.
Lack of Trained Human Force.
Protestation from Political Parties in Protection of Unorganized sector.
Restriction of FDI in retail by the government.
Unable to Provide Goods which are liked by the rural customers, who constitute 90% of India’s Population.
Absence of Developed Supply chain and Integrated IT Management.
High Cost of Real Estate:-
Retail Industry is facing trouble in acquiring required land to establish their malls. The actual space required for each type of Retail format is as follows.
• Large supermarkets, typically (3,500 - 5,000 sq. ft)
• Mini supermarkets, typically (1,000 - 2,000 sq. ft)
• Convenience store, typically (750 - 1,000 sq. ft)
Real estate is becoming a major problem for retailers because the persons involved in real estate business say that they get more profits if they sell same land to the residential areas compared to commercial purposes. If the Retailers are in a position to ready to pay, they have to pay huge amounts to purchase the land to set up their malls. If they want to take the land for lease retailers have to pay the amount more than the amount paid by the customers who take the land for residential purpose. Another reason why retailers are facing with land problem is that there is no adequate government land, hence government is also not in a position to provide land to retailers.
Lack of Trained Human force:-
Employees who need to work in these malls need some training. Educated youth are high in the country but they are not showing interest to work in these malls. Hence employers are looking at rural youth who are educated. But these employees do not have the required qualities like interacting with different customers when customers come to malls or does not have the clear knowledge about different products and other required training.
Protestation from Political Parties in Protection of Unorganized Sector:-
Organized retail is facing much protestation from different political parties. These Political Parties are protesting against the organized retail because they want to protect the Unorganized sector which is in existence from many years and if the organized retail is promoted Unorganized retailers are going to face many problems and so many people who are involved in this sector are going to lose their jobs.
Not only the Political Parties but some Trade Associations also protested against these companies. Here is a case of Reliance, how the association protested against it in Kerala. In Kerala India's largest State-level traders' association, the Kerala Vyapari Vyavasayi Ekopana Samiti (KVVES), has threatened to boycott all Reliance products if Reliance Fresh goes ahead with its plans to set up shop in Kerala. The KVVES has asked Reliance Fresh authorities to publicly announce, by June 1, that they will not open a single outlet in kerala. The traders warned reliance that if they do not stop their plan to open stores in kerala they will stop the use of reliance petroleum and reliance cell phones whose main consumers are the traders. The KVVES on Thursday wrote to Reliance Fresh authorities to shelve their plans to open some 200 outlets in the State, mainly Kochi, Kozhikode and Thiruvananthapuram. The outlets would sell vegetables, fruits, groceries, dairy products, confectionary and other daily needs.
Restriction of FDI in Retail by the Government:-
FDI is not allowed in retail industry to maximum possible extent because of which economy for the retail sector may not be increased. India’s retail trade is largely in the hands of the unorganized sector. Large super markets, malls and departmental stores are a recent phenomenon. They are mostly owned and managed by Indian promoters. In India there are approximately 40 million people and 11 million outlets in India’s retail sector. A person selling fruits and vegetables on a cart or a more stationary wayside shopkeeper selling grocery articles or food items represents the majority of retail traders in India. Each of these vendors occupy not more than 30-40 square feet of space at best, less than that of the parking space appropriated by the car of a consumer who comes to the big malls. Being unorganized they have no access to bank loans and are constantly under threat of eviction from the government.
100 % FDI in retailing in not allowed per say, foreign retailers can operate in India through joint ventures, where the Indian partner is a export house, Franchising/Local manufacturing/Sourcing from small-scale sector, Cash and carry operations. Wal-Mart’s tie up with Bharti and its 22 subsequent tie up with India will be through Cash and Carry operations. In India Retailing is not regarded as an industry very few banks are willing to invest in this sector. As per the present policy, retailing is subject to lot of laws and regulations at central, state and municipal/local levels. Some of these laws and restrictions are listed below.
- Restrictive zoning legislation limits availability of land for retail/ commercial purposes
- Restrictions on interstate movement of food grains deprive farmers from getting remunerative prices.
- Restrictive Labour laws
- Urban land ceiling regulations, restrictions on shop opening timings, requirements for shops
to close once a week
- There is no uniform tax structure - multiple layers of taxes.

Absence of Developed Supply chain and Integrated IT Management:
supply chain management for consumer goods in India is extremely challenging, due to complex taxation structures, large geographic distances, and high fragmentation of the consumer base. Exports, not local food needs, are made the objective. Thus while the supply chain for local markets are highly evolved and sophisticated, in the context of exports, it is perceived as deficient. The Bank has called this a "logistical tax".
Three factors explain India’s high logistical tax:
(a) geography, which is important but not decisive;
(b) poor transport and storage infrastructure, as well as policies that have led to the uneven utilization of existing infrastructure, and the slow creation of new infrastructure; and
(c) high marketing costs due to the fragmentation of the supply chain.
Threat of the Corporate Hijack of Retail:
The Threat of the Corporate Hijack of Retail Giant corporations like Wal-Mart and Reliance have started to try and take over the Indian retail sector. Currently the value of the retail market is estimated at around $ 270 billion with a growth 6 rate of 5.7 per cent per annum according to the Indian retail report. The size of small retail is big, the size of big retail is small, a mere Rs. 250 billion in 2004 or 3% and Rs. 485 billion or 4.7% per cent of the retail market in 2006. However, the large scale corporate retail is projected to grow at the rate of 28% to 30% per annum, reaching Rs. 1000 billion or $ 70 billion by 2010 from the current size of US $ 8.7 billion. The tenfold increase in corporate retail will be at the cost of small scale retail, which employs nearly 10% of India’s population. A number of cultural categories and policy instruments are being used to make corporate retail grow.
The first strategy is to define the small scale self-organized retail as "unorganized" and the large scale corporate retail as "organized". The real difference is however not unorganized vs organized. It is self-organized vs. corporate. Can an unorganized system provide food to millions of Indians since ages, and at the same time provide adequate returns to millions of farmers? Can an unorganized system act as the major link between rural and urban societies, where both of them are so much interdependent on each other? The question that arises then is why the existing system of business of food grains, fruits and vegetables is termed unorganized. Is it only the mega retail enterprises of the corporate giants, which are organized? Or unorganized retail is a term used by the corporations for their vested interest. So that they can organize it according to themselves, and control the whole food market from farm to fork in India.
As per the definition retail industry comprises of organised and unorganised sectors. Corporate retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner operated general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.
In India around 97%-98% of the retail industry is unorganized. Among the organized ones The already established retailers in India are Pantaloon Retail, Shoppers’ Stop, Spencers, HyperCITY, Lifestyle, Subhiksha , Trent while the new entrant is Reliance Retail. Wal-Mart with its Indian partner Bharti(the company that owns Airtel) is expected to come up with its first store by the beginning of 2008. It is ridiculous to think that the existing system is unorganised, as there is no farmer in the country, who does not have an access to a mandi, and there is no mandi in the country which is not connected to other mandis. The supply chain is so well arranged that no part of the country is devoid of basic necessities. Where ever there has been a demand, the supply has reached and it has reached on just prices. In a country with large numbers of people, and high levels of poverty, this model of retail democracy is the most appropriate in terms of ecological sustainability and economic viability.
The Changing Indian consumer
The following are the factors which drive the big retailers for seeing India as a lucrative market for its business. Indians with an ability to spend over USD 30,000 a year (PPP terms) on conspicuous consumption represent 2.8% of the entire population. But with a population base of 1.07 billion people, this number amounts to 30 million people, a market next only to USA, Japan and China. Apart from the government policy (mentioned in the following section) the retail growth is also driven by the following factors
Economic growth: This has meant greater disposable incomes for the Indian middle class, which currently comprises 22% of the total population. This figure is expected to increase to 32% by 2010. Disposable incomes are expected to rise at an average of 8.5% p.a. till 2015.
Demographics: More than 50% of the population is less than 25 years of age and strong growth is expected to continue in this age bracket.
Urbanization: The Indian urban population is projected to increase from 28% to 40% of the total population by 2020 and incomes are simultaneously expected to grow in these segment.
Credit availability: Retail loans have doubled in the last three years to reach USD 38.7 bn by 2005. All the above figures represent only about the rich and middle class of the country. Because of the Big consumer market that India offers, the government gives no heed to the concerns of unorganized 97% of the retail trade in India. People of all classes depend upon these traders for their daily supplies. When the government sees the numbers only on financial and profitable terms the numbers of the social cost that has to be sacrificed are huge.

CPM on Corporate retail
Communist party of India (Marxist) has been vehement in their criticism of FDI in retail. They are advocating a framework for a National Policy on Regulating Organized Retail. Small retailers need protection and policy support in order to compete with organized retail. The Ministry of Housing and Urban Poverty Alleviation has formulated a National Policy for Urban Street Vendors. The policy proposes several positive steps to provide security to street vendors considering it as an initiative towards urban poverty alleviation. However, what is required is a more comprehensive policy, which addresses the needs of small retailers, especially in terms of access to institutional credit and knows how to upgrade their businesses.
A regulatory framework for organized retail should also be framed. Since the operations of organized retailers impact upon various sectors of the economy, policy guidelines should be framed involving all the relevant Departments, namely Commerce, Agriculture and Urban Development. Moreover, since regulation of the large format retailers would mainly be in the domain of the states and local bodies, State Governments have to be consulted and involved in the process of framing. According to the CPM, In addition, the UPA Government should also abandon the moves to permit FDI in retail trade through the back door, as in the case of the joint venture between Wal-Mart and Bharti whereby the former proposes to operate in the cash-and-carry segment while the latter in the front-end. It is more than obvious that this proposed joint venture is nothing but a subterfuge, to circumvent the existing policy regime, which does not allow FDI in retail. The entry of giant MNCs like the Wal-Mart, TESCO, Carrefour etc, besides accelerating manifolds the already rapid growth of organized retail, would also sabotage any attempt by the Government to regulate the sector in order to protect the interests of the small retailers and farmers.
The UPA Government should take a categorical position on this issue. Not allowing MNCs to operate in the retail sector should be the starting point of the national policy on retail. CPM does not want a single large format retailer to be allowed to capture a large market share. They want to restrict the number of retail outlets that a 24 single private entity can open in a city, state as well as region and does not want a national level monopoly be allowed to develop in the retail sector. There are Several Government marketing agencies, which exist, both at the Central as well as State levels With a few exceptions, these agencies have been experiencing decay, owing to various factors. CPM wants these marketing agencies should be revived and encouraged to grow and compete with private large format retailers.
The latter half of the 20th century saw the emergence of super markets as the dominant grocery retail form in North America and Europe. As the income of the consumers rose and the shoppers sought for convenience and new tasted the supermarkets were able to expand the products offered. Saturated home markets, fierce competition and restrictive legislation have relentlessly pushed major food retailers into the globalization mode. Since the mid-1990s, numerous governments have opened up their economies as well, to the free markets and foreign investment that has been a plus for many a retailer.
The Kerala Example
While the Central governments is looking out ways in which Global retail chains can be attracted to the country by making their entry hassle free, the state of Kerala is all set to bring in a law to ban corporate retailers, both Indian and MNCs, in the state. The law department is working on the bill, The Kerala State Essential Commodities Act —2007, which is expected to get a cabinet clearing soon, before being introduced in the assembly. This would be the first attempt of its kind in the country. According to Food minister Mr Divakaran, the Left in Kerala doesn’t intend to draw the line for big retailers at peddling food grains, as Buddhadeb Bhattacharjee did for Bengal. The new legislation will be a blanket ban and the new bill is expected to, more than make up for "the lack of teeth" in the Central Essential Commodities Act.
In Kochi, Reliance has already opened six of its proposed 70 supermarkets and hypermarkets in the state and the government does not want any more new licenses issued to any of the retail chains. The existing chains will be wiped out in a phased manner and all the local bodies are directed, not to issue any more licenses. The government alleges that reliance operates all its stores in the cities and not in the rural areas. The government is banking on the fact that the left rules all the five corporations in the state which should help them in wiping out the existing chains slowly. The legislation has the backing of the state’s powerful traders lobby, the Vyapari Vyavasayi Ekopana Samiti. According to the Food Minister, the government is putting things in place to make up for the absence of big retail corporates in the state by having 35,000 PDS shops use that space and going to add 17,000 more large outlets to the 3,000 that the State Civil Supplies Corporation now runs, thus stopping the Corporates from tapping the state’s huge rural market. The government has also decided to take on the corporate brand pull by setting up the state's largest hypermarkets on its own, at Thiruvananthapuram, Kottayam and Kochi. That is besides some 14 huge 'People's Bazaars' to come up in each district, selling provisions, vegetables and everything else for day-to-day living, with appropriate price support from the government. This example of kerala shows that there is an alternate arrangement possible and entry of big Indian corporations and MNC’s are not inevitable.