Global Retail Overview

Global retail overview
RETAIL! Retail! Retail! Why is there so much talk about this industry, which is probably
the oldest business known to mankind? I presume it’s because the man behind the counter is no more a traditional baniya, but a tie-clad business graduate. The baniya is no more borrowing from the sahukar, but from the venture capitalist and the foreign institutional investor (FII). Calculations no longer depend on the mind, but on the microchip. The retail ethos has moved from ‘the customer is God’ to CRM (Customer Relationship Management). Against this backdrop, I would like to look into the ‘Indian retailing evolution’ in the last decade and try to see if I can trace its path and examine
what it will translate into in the future. And in order to do this, I will look at the four elements of successful retailing. In fact, these ingredients have been the same for centuries and are:
• Location and the space in the shop.
• Merchandise and merchandise management.
• People and service.
• Customer and customer relationship

The retail sector is becoming increasingly global and competitive as retailers across the world have taken advantage of global supply chains and the economies of scale, which come with high-volume operations.
In order to be successful, retailers must be able to deal with issues such as currency fluctuations, sudden political change, oil prices and tax rules. More recent issues include minimizing environmental impact and also ensuring that retailers benefit the communities in which they operate.
As with UK retailing, flexibility and efficiency are key to success in the global market. Retailers need to combine a strong brand image with the ability to provide excellent customer management systems and value for money.
UK firms such as Tesco, Sainsbury’s, Kingfisher and Marks & Spencer can compete with the best in the world. Indeed, Tesco’s internet-based sales models have been copied and emulated across the United States. Kingfisher and The Body Shop have also successfully exported their business models overseas.
The picture is not, however, simply one of a steady spread of UK retailers across the globe. Zara and ALDO have brought new models of business and expertise in the production and sale of clothing to the UK. Zara is able to design and deliver its clothes range to its stores in about six to nine weeks. It should also be remembered that some retail heavyweights such as Next, Marks & Spencer and Sainsbury’s have not always been successful in overseas markets.

The largest retailers
The list of the biggest retailers in the world is dominated by the grocers:
• Wal-Mart (USA);
• Carrefour (France);
• The Home Depot (USA);
• METRO Group (Germany);
• Tesco (UK);
• Kroger (USA);
• Costco (USA);
• Target Corp (USA);
• Koninklijke Ahold (Netherlands);
• Aldi GmbH & Co (Germany).


To be successful, manufacturers will have to learn to work effectively with global retailers. The best approach is to develop strong brands that consumers demand.
THE past two decades have seen relentless growth of global retailing. Carrefour and Metro operate in more than 25 countries, while Aldi, Auchan, Tesco, and Wal-Mart operate in more than 10 countries. It has led to a remarkable power shift from Suppliers to retailers. Historically, power in distribution channels has rested with brandmarketers like Nestle and Unilever. In contrast to these multinational suppliers, retailers were local and fragmented. Retailing was dominated by the owner-operated sector, romantically referred to as "mom and pops." Therefore, retailing acquired an image of being a simple, unsophisticated business, undeserving of attention from superior trained minds, be they academics or MBAs of prestigious schools.

In this environment, supplier organisations were optimised for trade relations with small and, local retailers. Structurally, manufacturer organisations typically coalesced around products or countries. In terms of policies and practices, these suppliers were predisposed towards utilising their coercive power over retailers to achieve distribution objectives.

Today, the five largest global retailers may account for almost half of a consumer packaged goods (CPG) company's revenues. This gives these retailers tremendous negotiating clout, which they are known to exploit rather aggressively. Serving end-users through powerful international retailers presents a momentous challenge for manufacturers because it requires them to morph their organisations from being country- and product-centred to becoming customer- and relationship-centred. It demands changes at several levels.
Nothing is as useful as a well-developed, well-articulated strategy for global accounts. It guides key account managers and customer development team leaders when they are face-to-face with global retailers and under tremendous pressure to cede to everything the retailer demands. A clear strategy gives them the confidence to say to important global ac¬counts: "No, we don't do that,' with the knowledge that they have top management support.
Global retailers push strong brands and use private labels to displace weaker brands. Consequently, manufacturers need to take a long, hard look at weak or local brands. That's why Procter & Gamble has eliminated many "also ran" brands including Aleve pain killer, Lestoil household cleaner and Lava soap, while Unilever has slimmed down to 400 brands from the 1,600 brands they owned in 1999.
While prices may differ across countries, the Structure of the pricing must be harmonised. Procter & Gamble has made significant Strides in adopting simpler as well as more logical and transparent pricing policies. While they do not reveal actual prices across customers, they do share the logic of their pricing structure and therefore are unlikely to be caught in a situation where they are unable to justify their prices across different retail customers or countries.
With global retail majors increasingly looking to spread their businesses across the world, India and China appear to have emerged as their preferred destinations. So much so, the rise of these two countries as global retail hotspots is posing a challenge to other emerging markets keen to attract investment in organised retail.


This is at the heart of a recent global retailing study, christened ‘2007 Global Powers of Retailing’ by the noted international consultancy firm Deloitte Touche Tohmatsu.

Despite growing anti-globalisation sentiment, the retail world continued to witness globalisation throughout. “Slow growth in many mature markets and not-to-be-missed opportunities in emerging markets - particularly China, India and Russia - are powerful driving forces,” the report states.
Citing instances, the study indicates that the leading 250 global retailers conducted business in 5.9 countries in 2005 on an average. “This same group operated in an average of 5.6 countries in 2004 and 5 countries in 2000,” the study notes.

Incidentally, only five of the top 250 retailers — Germany’s Metro AG, France’s PPR Group, UK’s Marks & Spencer Plc, South Africa’s Shoprite Holding and Hong Kong’s Dairy Farm International Holdings — have a presence in India. In sharp contrast to the Indian scene, more than 30 players of the top 250 retailers operate in China.

Though global economy is riddled with substantial risks, the Deloitte study notes that there is stability in emerging markets like China and India. Besides, the emerging markets of these two countries as well as Russia continued to experience robust economic growth.
As per the global retailing study, consumer spending in China has been rising at a furious pace, “thereby making the world’s third largest retail market very attractive to the world’s leading retailers. India, too, attracted increased attention.
Still, government restrictions meant that global retailers had few opportunities in this burgeoning market. Instead, indigenous companies began to invest massively in modernization and expansion,” the study says.
The end of the cold war and emergence of market-oriented governments in places like China, India and to a lesser degree in Latin America has created an explosion in wealth creation.

According to the study, markets at the same time create the one thing all retailers need - middle-class consumers. They also create inequality within countries. Even as the gap between rich and poor has increased, the size of the global middle class has exploded.

“By the next decade, the global middle class will approach 2 billion people. As a result, the next decade will be the decade of global retailing. The growth in the global middle class has therefore attracted the attention of global retailers,” the study states.

India has been ranked 44th on the list of most preferred destinations by global retailers, according to a report by real estate consultant CB Richard Ellis.
The report explores the globalisation of the retail industry and scrutinises retailer presence in relation to market sectors, country of origin, regional trends and other influences.

"Even though the Indian economy is growing at a rapid pace with consumers having more buying power, we are still only at the 44th position," said Anshuman Magazine, chairman and managing director of CB Richard Ellis (South Asia).

"This is primarily due to FDI (foreign direct investment) restrictions in retail and also relatively lower average per-capita income in the country. Hopefully in the future, if the FDI norms are relaxed, coupled with expected economic growth, India would move up in the rankings," Magazine added.

The Indian retail sector is highly fragmented with 97% of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10% by the year 2010 bringing in a huge opportunity for prospective new players 1. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10% of India's GDP 2.



Source: Ernst &Young, The Great Indian Retail Story, 2006.

A look at the statistics shows that the retail sector in India is worth USD 394 billion and is growing at the rate of 30% annually. An ICRIER study has found that retailing ($180 billion) contributes to 10 per cent of GDP and employs 7 per cent (21 million) of the workforce 3. According to AT Kearney, India is given the top ranking as the next foreign investment destination, as markets like China become increasingly saturated 4. India is the 4th largest economy as regards GDP (in PPP terms) and is expected to rank 3rd by 2010 just behind US and China1. Over the past few years, the retail sales in India are hovering around 33-35% of GDP as compared to around 20% in the US. The table gives the picture of India's retail trade as compared to the US and China.



Source: Economist, Let gradualism guide FDI in retail, 2006.

The last few years witnessed immense growth by this sector, the key drivers being changing consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the government increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers 4. In order to keep pace with the increasing demand, there has been a hectic activity in terms of entry of international labels, expansion plans, and focus on technology, operations and processes. This has lead to more complex relationships involving suppliers, third party distributors and retailers, which can be dealt with the help of an efficient supply chain. A proper supply chain will help meet the competition head-on, manage stock availability; supplier relations, new value-added services, cost cutting and most importantly reduce the wastage levels in fresh produce 5.
Large Indian players like Reliance, Ambanis, K Rahejas, Bharti AirTel, ITC and many others are making significant investments in this sector leading to emergence of big retailers who can bargain with suppliers to reap economies of scale. Hence, discounting is becoming an accepted practice. Proper infrastructure is a pre-requisite in retailing, which would help to modernize India and facilitate rapid economic growth. This would help in efficient delivery of goods and value-added services to the consumer making a higher contribution to the GDP.
International retailers see India as the last retailing frontier left as the China's retail sector is becoming saturated. However, the Indian Government restrictions on the FDI are creating ripples among the international players like Walmart, Tesco and many other retail giants struggling to enter Indian markets. As of now the government has allowed only 51% FDI in the sector to `one-brand' shops like Nike, Reebok etc. However, other international players are taking alternative routes to enter the Indian retail market indirectly via strategic licensing agreement, franchisee agreement and cash and carry wholesale trading (since 100% FDI is allowed in wholesale trading).




Top 10 Trends in Global Retailing

The top-10 trends in global retailing provide a basis for identifying responses by retailers in addition to exhibiting implications and opportunities for suppliers. The trend of big box retailing has expanded to a global level, increasing sales figures and store numbers has fuelled this movement. The second trend revolves around WalMart developing a solid strategy for success. Though expanded sales, employment, and percentage share of the grocery market, WalMart has focused on practices and information sharing in addition to supply chain innovation. Another trend has followed alternative formats in capturing significant share of markets, shopping at traditional supermarkets less frequently than in the past has provided opportunities for alternative outlets. The fourth trend is where leaders are increasingly extending their reach with new store formats and offerings, including community involvement and innovative promotions. Retailers are also moving towards becoming more sophisticated marketers by fulfilling needs of consumers; strategies revolve around catering to top shoppers through loyalty, signature items, and brand recognition. The sixth trend is where retailers are organizing around the need state. This trend focuses on programs designed to meet consumer lifestyles and needs based on time, family, money, and personal obligations. The retailers are also focused on optimizing the box, including efficiency and allocation through space, packaging, and handling. The eighth development is that pricing is considered a hot topic. As a major contributor in consumer decision-making, pricing strategies apply price optimization and management to effectively strengthen a given product's price image. The top ten trends are rounded off by the evolution of European markets dominated by European retailers and that China is opening up through new laws allowing greater market access. The top-10 trends in global retailing explain directional changes of retail on the world market and provide insight to future focuses of retail marketing.








Global retailing affecting Indian market
WAL-MART may not be in India yet, but its essence is already pervasive here. Even as a debate is on as to whether foreign companies should be allowed unfettered access to retail business, some large Indian conglomerates have entered the sector. There may indeed be a kernel of truth in the hyped-up slogan of launching a "Retail Revolution", which is an attempt to overturn the traditional way of selling goods. In the name of efficiency, and in the name of eliminating the much-abused "middleman", they have already established niches in urban India and are aggressively expanding their operations. And, the tension that their entry has caused is palpable.
Since late last year, when all eyes were still on Wal-Mart, Indian companies have quietly launched their retail businesses across the country and scaled up their operations significantly. Among these are the RPG Group, Pantaloon Retail, the Wadias, the Rahejas, the Aditya Birla Group and, of course, the Reliance Group headed by Mukesh Ambani. While some companies, such as Reliance, have set up their own operations, others such as the A.V. Birla Group have taken over existing retailers.
Although Reliance is by no means the only one - or even the most domineering one - its entry has caught the eye as symbolising the new wave of retailers. It has established backward linkages in the food segment, considered to be the most lucrative part of the retail business in India. It entered the grain market last year by making significant purchases of wheat in Punjab and Madhya Pradesh. Since then it has established a rapidly expanding chain of stores selling fruits and vegetables across the country. In recent weeks, small traders in Bhopal and Indore (Madhya Pradesh), Ranchi (Jharkhand) and Delhi, attacked Reliance Fresh outlets, which sell fruits and vegetables. There have also been muted protests by traders in Chennai and other cities where the fear is discernible.
Frontline's reportage from across the country documents the growing unease among different sections of society depending on retailing for their livelihoods. They also highlight the layered nature of the retail business, at variance with the popular and simplistic notion about "shopkeepers" as a homogeneous kind. Although these are still early days for Big Business in retail, it is evident that opposition to consolidation is gathering force.
As the government dithers on the question of allowing Foreign Direct Investment (FDI) in the retail sector, it has left the door ajar for Big Business to move in. The task of Big Business has been made easier by the government's failure to act as an impartial referee adjudicating a battle for India's retail turf among sections with unequal strength.
In particular, elements of the policies associated with economic liberalisation have opened loopholes for business houses to exploit. For instance, amendments by the State governments to the Agricultural Produce Marketing Committee Act (APMC), which controls the terms on which agricultural produce is procured in markets across the country, now enable large industrial houses to build their own supply chains, which is at the heart of the retail revolution.
It is no surprise that one of the main areas of conflict between the big and the small players is the mandis and wholesale procurement centres across the country. The Koyambedu wholesale market in Chennai is simmering with tension over the entry of Reliance Fresh.
Market division
There are about 15 million retail outlets in India. Of this, only 2 per cent are in the organised sector. In fact, 95 per cent of the outlets occupy less that 500 square feet of space. According to a recent report, prepared by McKinsey&Company, India has the highest density of retail outlets in the world. There are about 15 outlets per 1,000 inhabitants in India, compared with four or five per 1,000 inhabitants in developed countries.
Two aspects of the Indian retail scene stand out. The first is its duality - a large number of small retailers on the one hand and a small number of large outlets on the other. About 40 million people make a living from activities that come under retailing. The overwhelming portion of retail trade — 98 per cent — is through the unorganised sector, a euphemism for sales done through tiny family-owned shops, roadside eateries, kiosks at street corners, and hawkers and street vendors plying their wares on pushcarts (there are nearly half a million street vendors in urban India alone). In the language of the marketing gurus, these outlets cater to the needs of low-value, high-frequency customers.
Catering to those at the other end of the social spectrum are a small number of large retailers, operating out of glitzy malls and superstores, whose behaviour can be characterised as high-value, low-frequency consumer behaviour. It is not as if these consumers are not cost-conscious. Indeed, large retail chain stores understand that this section can be enticed with offers of "bargain shopping", resulting in higher volumes of sales ("Realities behind retailing", Frontline, February 10, 2006).
Although large-format stores are still few in number, their number has been increasing rapidly in recent years. According to the recently released A.T. Kearney's 2007 Global Retail Development Index, the organised retail industry in India is growing at the rate of about 40 per cent a year. It predicts that organised retailers, who now command about 2 per cent of the total turnover of about $350 billion (Rs.15,75,000 crore), will increase their share to over 5 per cent by 2010, when retail turnover is projected to touch $427 billion (Rs.19,21,500 crore).
The results of a survey of small trading establishments conducted by the National Sample Survey Organisation (NSSO) in 1997 reveal the precarious existence of small retailers. The average number of workers employed by more than 14 million small trading outlets was about 1.5, indicating that these units were mainly dependent on family labour. The overwhelming proportion of the units — more than 90 per cent — were perennial, reflecting the heavy dependence of families on retailing for livelihoods. The average value of fixed assets owned by these units amounted to a mere Rs.26,600, indicating a very low capital base. This would obviously affect their ability to stock goods and, therefore, their turnover.
The other striking feature of Indian retailing is that it mirrors the social and economic divide. The skewed income distribution — reflected in the skewed consumption pattern — lies at the heart of the dichotomy in Indian retailing. Data on consumption released by the NSSO in December 2006 show that in 2004 - 2005, the average monthly per capita consumption expenditure (MPCE) was Rs.1,052 in urban India and Rs.559 in rural India. It is striking that the top 10 per cent of urban spenders had an MPCE of Rs.1,880, showing how thin the upper crust of the Indian "middle class" really is. Only 5 per cent of the Indian population had an MPCE of more than Rs.2,540.
It may be true that organised retailing holds the promise of lowering prices of goods sold through large stores. There may indeed be benefits accruing from the scaling up of retail operations. Benefits may also accrue by harnessing the potential offered by information technology, particularly in the matter of better inventory management. However, the `benefits' must be seen in the context of their economy-wide ramifications.













WAL-MARTISATION


Wal-Mart's success rested on its ability to take control of the supply chain, subverting existing channels of supply and distribution in the United States. Walmartisation - the process of consolidation of the supply chain - is the name of the game. Of course, it will be a flexible approach, taking into account the characteristics of the Indian market. For instance, it is already evident that hypermarkets in sizes large by Western standards are unlikely to be replicated in India. Instead, companies are more likely to establish chains of stores in relatively affluent neighbourhoods in urban India, selling products that are not necessarily associated with the elites alone. For example, the battle is likely to be more focussed on the food and grocery business and textiles where the demand base is wider. Business interests are also likely to factor into their calculations the political resistance to their ambitious plans.
The traditional supply chains - the distribution channels connecting producers and final consumers - were longer because companies found it appropriate in a situation where incomes were more evenly distributed. A marketing executive with a leading FMCG (fast-moving consumer goods) multinational told Frontline that this kind of distribution was suitable in a situation where demand for its products was more widely distributed across geographical space. This strategy, which can be termed as the carpet bombing technique, required a network of agents distributing the company's products. The manufacturer also invested in building and maintaining the supply chain.
However, in a situation in which the demand for manufactured products is increasingly concentrated in more tightly defined geographies, largely because of rising inequalities in income and wealth, this strategy becomes redundant. This drives the perception that costs can be cut by more effectively targeting only those consumers who have higher purchasing power.
The marketing strategy associated with this may be called the precision-bombing strategy, which facilitates a delivery channel directed at islands of affluence. Companies like Wal-Mart saw the possibilities emerging from a concentration in incomes. This is what paved the way for "Big Box Retailing", which offers discounts to consumers buying in bulk.
Kishore Biyani, CEO of the Future Group, which includes Pantaloon, Big Bazaar and Food Bazaar, told Frontline that his group's business model was based on a "careful study" of international chains such as Wal-Mart and Marks and Spencer. The company, he said, had applied it after "modifying them to suit the Indian context".
J.H. Mehta, president and CEO, Spencer's Retail Ltd, said his company "aims to buy manufactured products directly from manufacturers and agricultural products directly from farmers/millers". However, he said the company still sourced from intermediaries items whose sales were not very high.
Since widening inequalities give rise to concentration of purchasing power, large retailers, by building their own supply chain, and distributing goods through their own chains of stores, have an interest in subverting the existing supply chain. By investing in a supply chain, including warehouses and godowns, these big retailers are able to offer manufacturers increased margins. Manufacturing companies, especially the larger ones, are likely to be tempted to be drawn to utilising these new supply channels because they can avoid forgoing margins to their partners in the supply chain - distributors, stockists, clearing and forwarding agents - apart from making their own investments in building the chain.
Recent reports that Wal-Mart's warehousing division, Sam's Club, is planning an India launch, taking advantage of the provisions allowing 100 per cent FDI in warehousing, illustrate the processes at work. The subsidiary, apart from catering to the needs of the Wal-Mart-Bharti alliance, would stock a range of goods from several companies, which will enable its clients to cut costs by bypassing existing supply chains ("Wal-Mart walks in", Frontline, January 12, 2007).





EXAGGERATED BENEFITS
It is obvious that there is a coincidence of interests among large retailers and large manufacturers. An alliance of Big Business thus drives the process of consolidation. Since the search for higher profits cannot be readily admitted, Big Business clothes this with the noble objective of eliminating the middleman in order to offer gains to consumers through lower prices.
Although some sections of organised retailing complain that high land prices have a dampening effect on scaling up operations, others see high land prices as an effective barrier to entry and competition in the sector. Moreover, they deter existing medium-sized retailers from expanding their operations. High land prices thus facilitate the drive towards consolidation.
The case of agricultural commodities is slightly different, but in this case, too, the process is driven by Big Business, which intends to take control of the supply chain. Regulations governing the market for agricultural produce typically gave the government monopoly rights over the purchase of grain and other agricultural produce. This was based on the perception that since these markets were connected to the question of food security, they could not be trifled with by private trade. Other legislation also restricted the movement of produce across borders.
Similarly, regulations governed the manner in which trading was conducted in the officially designated mandis and marketing yards where produce was auctioned. Private trade in general and reform enthusiasts in particular have been clamouring for a dismantling of these controls. Of course, the drive towards consolidation is done behind the façade of giving farmers better prices for their produce.
It may well be asked: How does it matter to the poor if the rich can buy more while enjoying greater convenience? Pankaj Jaju, a retail sector analyst with Enam, echoes this cheerfully optimistic line of reasoning. He dismisses the fear that the arrival of the big means the end of the road for the small retailer. "Not everyone is comfortable shopping in huge stores. Smaller retailers will always cater to the lower-income groups," he said.
The problem with the new supply chains is that their success depends on subverting existing channels, on which millions of livelihoods depend. However, the issue is not only of existing jobs connected to retailing. Since the new chain stores are likely to be situated primarily in urban areas with a certain critical mass in terms of purchasing power (Reliance Fresh stores, for instance, are typically located in urban localities with a sizeable upper middle class population), cheaper prices will benefit those who can afford to buy in bulk, although paying less per unit.
However, these chains are unlikely (at least in the near term) to venture into those parts of the city where its underclass lives (at least one-third of the population in Indian cities lives in slums). And, the disruption in existing supply chains means that poor folk will either suffer shortages or pay more for the same products that the affluent get at cheaper rates.
In order to promote the popular acceptance of the move towards consolidation, Big Business tends to exaggerate the gains. The elimination of the "middleman" is always a laudable objective. However, these links do not work in a vacuum.
In any case, the business model being pursued is by no means the only one possible. The same objective, of furthering consumer welfare, can be achieved through the promotion of cooperatives of producers and consumers, resulting in a win-win situation for both. But these are neither "viable" nor "workable" because they do not further monopolise profits. Several similar attempts, such as the Uzhavar Sandhai (Farmers' Market) in Tamil Nadu, had received popular appreciation even though they had limited success before they were derailed.
The State's role as an arbiter of contesting interests has been brought into question in the case of policies relating to the retail sector. It would appear that the multiple loopholes available to Big Business are a result of the dilution of the existing regulatory framework. The question of now plugging the loopholes is akin to trying to stem the flow from a dam after opening the sluice gates.


In Kerala, a protest by traders against the entry of monopolies in the retail sector being inaugurated by CPI(M) State secretary Pinarayi Vijayan.
For instance, the loosening of the regime governing the market for agricultural produce has facilitated the entry of Big Business into the sector. Reliance and other players have also utilised other loopholes in the policy regime for the retail sector. For instance, Reliance, without much fanfare, had established wholesale "cash and carry" operations through Ranger Farms, which sells fruits and vegetables in bulk.
Of course, the opening up of the wholesale business had earlier facilitated the entry of Metro. Critics allege that the entry of the German company has facilitated its "backdoor entry" into the retail business.
Indeed, the permissive regime promoted by the Centre has tied the hands of even State governments that would like to pursue a more even-handed approach. For instance, although the West Bengal government has allowed Reliance to enter the retail business, it has asked the company to stay away from the foodgrain business. Chief Minister Buddhadev Bhattacharjee admitted that the legal hurdles to the entry of big business houses into retail were simply non-existent. He said, "No one can stop them from doing business in West Bengal. Once they move the court, they will get the permission to run the business." Reliance apparently wanted the West Bengal Agricultural Produce Marketing (Regulation) Act to be repealed, and this was not acceptable to the State government. However, in Maharashtra, since the recent amendments to the APMC Act, several large retailers, including Reliance and Metro, have applied for licences to make direct purchases from farmers, bypassing the APMC. Reliance Fresh, which now has more than 150 stores across 20 States, is set to launch 100 outlets in Mumbai alone.
The permissive regulatory policies have emboldened Big Business to indulge in apparently unfair practices. For instance, traders at Azadpur (near Delhi) as well as Koyambedu complain that the large retail chains procuring directly flood the "rejects" back into themandis, thereby dampening prices there.
Large retailers buy significant amounts of produce at the Azadpur mandi, through commission agents. A senior official at the Directorate of Agricultural Marketing in the Delhi Administration told Frontline that a large retailer with a nationwide footprint had been selling agricultural produce in Delhi without acquiring a licence, which was a requirement under the provisions of the Delhi APMC Act. In fact, he said that none of the big retailers had a licence to sell in Delhi. None of these firms pay the 1 per cent marketing fee to the Azadpur mandi, which gives them an unfair advantage over other traders who buy at the mandi.
It is not as if the political establishment is oblivious to the potentially explosive situation that can emerge out of the processes set in motion by liberal trade policies. Indeed, the fact that United Progressive Alliance chairperson Sonia Gandhi asked Commerce Minister Kamal Nath to commission a study on how these policies will affect small traders shows that there is recognition that the opening up of retail to Big Business is likely to have disastrous consequences. However, there is no inkling that this recognition is backed by either political will or sagacity to roll back the elements of the policy regime that are pushing large numbers of Indian retailers to ruin.

GLOBAL REPORT

 30.9% of internal losses suffered by retailers occurred at the checkout or cashpoint, 36.5% in the back office, stockroom, or delivery bay, and 32.6% on the sales floor. The most common method of internal fraud was theft of merchandise, representing 41.1% of internal losses; cash, coupons, and vouchers, 26.5%; refund fraud and false markdowns 15.3%; collusion, 10.2%; and large financial frauds, 6.9% of internal fraud.

 Global loss prevention costs were $25,590 million, 0.35% of retail sales. Revenue costs were $17,303 million and capital costs $8,287 million. Security employees accounted for 54.6% of loss prevention spending, while spending on security `equipment was 32.4% ($8,290 million).

 The global costs of retail crime, based on the costs of thefts by customers, disloyal employees and suppliers and vendors plus the costs of loss prevention were $108,093 million, equivalent to $283.61 per household.

 The most-stolen items of retail merchandise within the 32 countries included branded and expensive products: cosmetics and skincare, alcohol, womenswear/ladies’ apparel, perfume and fine fragrances, and designerwear. Other highly stolen lines included razor blades, DVDs/CDs, video games and video consoles, small electric items, and fashion accessories.
 Retailers protected only 61% of their ten most-vulnerable product lines (including spirits, perfumes and razor blades). Electronic article surveillance was the single most-used protection method (used on 35.4% of lines) and safers and locked boxes were used on 11.3% of products.

 Electronic article surveillance source tagging (ST, applying tags during manufacture or the logistics chain) was used by 39.8% of retailers, including 45.2% in North America, 39.7% in Europe and 27.4% in Asia-Pacific. A further 25.5% of retailers expected to introduce source tagging within the next two years, implying that by the end of the decade 65.3% of retailers will use source tagging. The average number of product lines that were source tagged was 268 (providing 16.4% of retail sales). In North America, source tagging had much higher levels of penetration, responsible for 21.3% of sales.

 Total global shrinkage (stockloss from crime or waste expressed as a percentage of retail sales) cost retailers in the 32 countries $98,630 million, equivalent to 1.36% of retail sales. The countries with the highest shrinkage rates were India, Thailand, and the U.S., while Austria, Switzerland and Iceland had the lowest rates.

 One-half of the 32 countries suffered increased rates of shrinkage between 2006 and 2007, although Asia-Pacific retailers reduced shrinkage by 4.6%. Globally, the average shrinkage rate increased by 1.5%, an increase from 1.34% to 1.36%.

 The largest source of shrinkage was customer theft (shoplifting), responsible for 42.0% of shrinkage or $41,504 million. Disloyal employees cost 35.2% of shrinkage or $34,671 million, internal error and administrative failure (e.g. pricing or accounting mistakes) was 16.5% ($16,248 million), and supplier or vendor theft and fraud was 6.3% of shrinkage ($6,207 million). Retailers in the U.S, Canada, Australia, and Iceland reported that employee theft was higher than customer theft.

 Retailers apprehended almost 6 million store thieves in 2007, 87.5% of whom were customer thieves and 743,499 were employee thieves. Most employee thieves were apprehended by North American retailers, while the majority of customer thieves (3,481,490) were apprehended by European retailers. The average amount stolen or admitted by apprehended customer thieves was $270, while employee thieves stole an average of $1,967, seven times more than customer thieves.





Problems of global retailing

The Global Barometer covers 32 countries in North America, Europe and Asia-Pacific. Data has been collected from 820 of the largest retail corporations with combined sales of £447 billion ($948 Bn), representing 16% of European retail sales, 13% North American and 5% of Asia-Pacific sales.
• Total global shrinkage (stockloss from crime or waste expressed as a percentage of retail sales) cost retailers in the 32 countries £49,808 million (US$ 98,630 million), equivalent to 1.36% of their retail sales.
• Globally, shrinkage and crime rose from 1.34% to 1.36%. One-half of the countries suffered increased shrinkage, although Asia-Pacific retailers reduced shrinkage by 4.6%.
• Retailers in most countries thought customer theft (shoplifting) was their biggest problem, responsible for 42.0% of shrinkage or £20,906 million ($41,504 million). But the US, Canada, and Australia perceived employee theft to be larger than shoplifting.
• Across the 32 countries, disloyal employees cost 35.2% of shrinkage or £17,464 million ($34,671 million) internal error and administrative failure (e.g. pricing or accounting mistakes) was 16.5% (£8,184 million or $16,248 million), and supplier or vendor theft and fraud was 6.3% of shrinkage (£3,126 million [$6,207 million]).


• Retailers apprehended almost 6 million store thieves in 2007, 87.5% of whom were customer thieves and 743,499 were employee thieves. Most employee thieves were apprehended by North American retailers.
• Global loss prevention costs were £12,890 million ($25,590 million), 0.35% of retail sales. Revenue costs were £8,716 million ($17,303 million) and capital costs £4,174 million ($8,287 million). Security employees accounted for 54.6% of loss prevention spending, while spending on security equipment was 32.4% (£4,176 million or $8,290 million).

• The global costs of retail crime, based on the costs of thefts by customers, disloyal employees and suppliers and vendors plus the costs of loss prevention were £54,446 ($108,093) million, equivalent to £142.85 ($283.61) per household.
• The most-stolen items of retail merchandise within the 32 countries included branded and expensive products: cosmetics and skincare, alcohol, womenswear/ladies' apparel, perfume and fine fragrances, and designerwear. Other highly stolen lines included razor blades, DVDs/CDs, video games and video consoles, small electric items, and fashion accessories.
Global Retail Shrinkage in 2007
Total Shrinkage 2007 US Dollars
Shrinkage
(as % of sales) Percentage
Change
All Values in US$ US $ million 2007 2006 2006-2007

NORTH AMERICA
Canada 3,630 1.49% 1.43% 4.2%
United States 39,855 1.52% 1.49% 2.0%
Average N.America 43,485 1.52% 1.48% 2.7%

ASIA-PACIFIC
Australia 2,008 1.39% 1.36% 2.2%
India 2,379 2.90% 3.20% -9.4%
Japan 9,643 1.04% 1.09% -4.6%
Singapore 179 1.25% 1.19% 5.0%
Thailand 1,055 1.65% 1.76% -6.3%
Average Asia-Pacific 15,264 1.24% 1.30% -4.6%

EUROPE
Austria 588 0.94% 0.96% -2.1%
Belgium/Luxembourg 1,106 1.33% 1.28% 3.9%
Denmark 500 1.2% 1.24% -3.2%
Finland 567 1.32% 1.34% -1.5%
France 6,326 1.34% 1.29% 3.9%
Germany 6,681 1.1% 1.07% 2.8%
Greece 712 1.36% 1.33% 2.3%
Iceland 37 1.00% 1.06% -5.7%
Ireland 596 1.33% 1.25% 6.4%
Italy 4,201 1.23% 1.24% -0.8%
The Netherlands 1,607 1.24% 1.2% 3.3%
Norway 587 1.26% 1.29% -2.3%
Portugal 489 1.31% 1.34% -2.2%
Spain 3,602 1.28% 1.29% -0.8%
Sweden 861 1.32% 1.32% 0.0%
Switzerland 799 0.96% 0.92% 4.3%
United Kingdom 7,621 1.34% 1.33% 0.8%
Average
Western Europe
36,880
1.25%
1.23%
1.3%
Czech Republic 490 1.41% 1.42% -0.7%
Hungary 458 1.36% 1.38% -1.4%
Poland 1,596 1.34% 1.32% 1.5%
Slovakia 176 1.36% 1.4% -2.9%
Baltic States 281 1.42% 1.32% 7.6%
Average
Central Europe
3,001
1.36%
1.35%
1.0%
Average Europe 39,881 1.26% 1.24% 1.6%

Average Global 98,630 1.36% 1.34% 1.5%








Another aspect of problems
If you wait long enough, not only does history repeat itself in broad brushes and themes, but even through specific crazes. Lately I’ve been noticing one business fashion, conglomeration, which seems to be returning in a new form: the e-conglomerate.
An e-conglomerate is a high tech company whose lines of business move increasingly further afield of each other. Microsoft makes money with desktop operating system, server, and office productivity software … and loses it in the online and entertainment/gaming divisions.
Amazon makes 97.4 percent of its net sales from media, electronics, and other general merchandise. And yet, the company is investigating other arenas, such as becoming an online payment service provider for other companies, selling its own hardware in the form of the Kindle e-book reader, offering a marketplace for outsourcing software development, and cloud-computing services. Amazon doesn’t provide as clear a break-out of its income as Microsoft, in terms of investors understanding exactly the return on the range of ventures, but that’s one wide range of activities.
Then there’s Google, with search engines and advertising, mobile phone design (that doesn’t seem to be impress much of anyone), user productivity software, enterprise software, rumored efforts in creating at some level its own media content, and clean energy technologies. The company does say that it devotes 70 percent of its resources to search and advertising, 20 percent to “related businesses” that include the apps, and ten percent to “areas that are farther afield but have huge potential, such as Android,” though no hint on how revenue breaks out by operating segment.
Traditionally, high tech companies haven’t been shy about diversification. HP has enterprise storage, services, software, personal systems, imaging and printing, and financial services. IBM might have been the prototypical e-conglomerate, before Lou Gerstner started to change the focus to services and the company began to shed many of its non-core activities.
But Google, Amazon, and Microsoft are all examples of companies with wildly diverging sets of businesses that might have been more noticeable if they weren’t largely home-grown, or acquired at very early stages. The reason to call them e-conglomerates is to avoid high tech’s general lack of business memory, which can lead to needlessly repeating the mistakes of others.
The original conglomerates were all the rage in the 1950s and 60s, as University of Buffalo finance professor Michael Rozeff notes, with a single corporation owning dozens of separate companies whose markets and operations had nothing to do with one another.
The corporations had compensation plans that benefited individual units but failed to optimize overall results. There was little to no economy of scale because the various entities were largely independent of one another. No one could effectively integrate all the accounting and operational systems, so getting the necessary information to manage the overall business coherently was impossible. Politics, not cold examination of finances, governed internal distribution of capital. As management turned over, corporations realized that they could make even more money by breaking things up again, and so they did.
Shunning a direction because it didn’t work in the past is short-sighted; there might be an important difference in the current situation. However, to ignore history, as we’ve all heard, is chance repeating it.

The Future of Global Retailing

The expectations:


As the cheetphant breeds what can we expect in Scottish retailing over the next 10 years assuming intervention in the market remains much as it is today? This is essentially the steady as we go approach to policy interventions. First, there is likely to be an increasing concentration in the core retail market in both structural and spatial terms. In structural terms we can expect an increasing dominance of the largest firms with the top 10 companies accounting for around 50% of the market by 2010.
The trends suggest that there will be an increasing amount of poorer quality retail space that is no longer needed for retailing. In some shopping areas there may be conversion to other types of consumer services as retailing-style operations are applied to more consumer services, for example in financial and legal services, walk-in health and lifestyle services, and leisure services. This extension of what is now termed retailing will be substantial but is unlikely to absorb all the lower quality space that will be released, because some of these new retail formats will seek prime space or space in shopping centres. The replacement of old with new poses the problem of what to do with the old.
Innovation with new formats, both large and small, in established shopping areas and also in some unconventional locations including transport interchanges, the countryside, heritage locations, and very importantly on screen. Internet based formats are likely to increase in importance such that these formats could be accounting for an average 8-10% of retail sales by
2010. In some product areas the share is likely to be well above this. The implications of these new formats will depend on where their share is taken from - both spatially and by existing format. A greater proportion of Scottish retailing will be controlled by firms with headquarters outside Scotland and also outside the UK. Does this matter?
In many countries external ownership of retailing is commonplace. Perhaps, it would matter less if the Scottish market was considerably bigger. The relative smallness of the market may make it a peripheral part of the overall operations of a company with extensive retail interests across Europe, USA and East Asia. Such peripherality could make Scottish operations vulnerable if the firm got into difficulties. Of more importance is that with foreign ownership it is likely that fewer items in the stores will be made in Scotland. A high degree of external ownership also has implications for opportunities for the cadre of Scottish managers with head office opportunities only available outside Scotland.

Conclusion
Against this backdrop, I would like to look into the ‘Indian retailing evolution’ in the last decade and try to see if I can trace its path and examine what it will translate into in the future. And in order to do this, I will look at the four elements of successful retailing. In fact, these ingredients have been the same for centuries and are:
 Location and the space in the shop.
 Merchandise and merchandise management.
 People and service.
 Customer and customer relationship.

 A challenge for modern retailers, across the world, is to manage the large assortment of merchandise they stock.

 Once the mall phenomenon becomes common, brands will compete with retailers
 in the malls.

 The manufacturer and the retailer need to sit on the same side of the table, while serving the consumer on the other side.

 The new Indian consumer has an affinity to Western fashions, but expects the value for money and the level of service that traditional retailers offer.