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STRATEGIC ISSUES IN RETAILING

STRATEGIC ISSUES IN RETAILING. STRATEGIC ISSUES IN RETAILING. At the end of this module, the learning outcomes are Understand the history of Indian retailing sector Emerging trends Understand the strategic drivers of this industry Understand the challenges the organized retailer faces.

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STRATEGIC ISSUES IN RETAILING

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  1. STRATEGIC ISSUES IN RETAILING

  2. STRATEGIC ISSUES IN RETAILING At the end of this module, the learning outcomes are • Understand the history of Indian retailing sector • Emerging trends • Understand the strategic drivers of this industry • Understand the challenges the organized retailer faces

  3. STRATEGIC ISSUES IN RETAILING Background • Organized retailing • New to India • Excess of 5 million retail outlets • Comprises of both organized and unorganized sector • Organized sector market share is less than 10%

  4. STRATEGIC ISSUES IN RETAILING • Large market • Fragmented • Only 7% of the 5 million retail outlets have annual sales in excess of 10 lacs per annum.

  5. STRATEGIC ISSUES IN RETAILING Barriers to entry for organized sector • The unorganized sector • Retail margin • Supply chain management • Sourcing economies • Automobile ownership • Infrastructure • Middle class psyche • Large-scale diversity

  6. STRATEGIC ISSUES IN RETAILING The unorganized sector • Unorganized retailing • Long history • Many centuries • Local kirana/grocer dominant • Low-cost structure • Saves on real-estate/labor costs • Little or no taxes to pay • Consumer familiarity

  7. STRATEGIC ISSUES IN RETAILING Organized sector • Large overheads • Compete with grocer on prices • Facilities • Airconditioning • Power backup • Home delivery • High inventory costs • taxes

  8. STRATEGIC ISSUES IN RETAILING Retail margin • 10 to 12% average for grocers in India • 25-35% in developed countries • Grocer can survive • How organized retailer will survive with 10-12% margin? • High overheads

  9. STRATEGIC ISSUES IN RETAILING Supply chain management • Product availability • Inefficient transportation systems • Makes modern retailing difficult • Absence of economies of scale • Impacts cost

  10. STRATEGIC ISSUES IN RETAILING Sourcing economies • Absence of large scale retailers • Diseconomies of scale • Unable to negotiate large discounts with suppliers

  11. STRATEGIC ISSUES IN RETAILING Automobile ownership • Limited to 4% of the population • Makes out-of-town shopping difficult • Limits large scale purchases difficult for customers • Large scale shopping is the essence of shopping in organized retail stores.

  12. STRATEGIC ISSUES IN RETAILING Infrastructure • Parking limitations • High local government taxes • Frequent power failures • Efficient logistics difficult • Adds to costs

  13. STRATEGIC ISSUES IN RETAILING Middle class psyche • Consumer psychology • Larger stores are expensive • Partially a myth • Local grocer still cheaper

  14. STRATEGIC ISSUES IN RETAILING Large scale diversity • India, a culture of diversity • Diversity leads to dependence on local suppliers • Match local tastes • Discourages economies of scale • Unfavorable to organized sector

  15. STRATEGIC ISSUES IN RETAILING Early entrants in organized sector • Bata • Raymonds • Vimal • Mostly franchisee route • Overcome high real estate costs • Later new breed of players

  16. STRATEGIC ISSUES IN RETAILING • Shoppers Stop • Future group • Entry of large houses • Deeper pockets • Success of cooperative chains

  17. STRATEGIC ISSUES IN RETAILING The Changing scenario • Changing lifestyles • Increasing disposable incomes • Lesser and lesser time to devote to numerous shopping trips • Lesser trips • Larger size of purchase per trip • Concentration of middle class • Moving away from city to suburbs

  18. STRATEGIC ISSUES IN RETAILING • Mall culture setting in • New players • Restrictions on foreign retailers

  19. STRATEGIC ISSUES IN RETAILING FUTURE SUCCESS IMPERATIVES Clear value proposition • Big Bazaar • Clear value propositions • ‘Is se sasta koi nahin’

  20. STRATEGIC ISSUES IN RETAILING Plain imitations of western models • Tendency to imitate western models • Will not always work • Different environmental conditions • Failure of Nanz

  21. STRATEGIC ISSUES IN RETAILING Strong cost focus • Higher costs for organized sector • Low-margin business • Cost control critical • Longer gestation period

  22. STRATEGIC ISSUES IN RETAILING Private labels • Popular in western countries • Why retailers promote • Higher margins than national brands • Threat to national brands • Source of additional revenue to retailers

  23. STRATEGIC ISSUES IN RETAILING Building royalty/CRM • Building loyalty • Identifying profitable customers • Use of CRM techniques

  24. STRATEGIC ISSUES IN RETAILING Price • As market matures • Price a key differentiating factor • Higher value for money

  25. STRATEGIC ISSUES IN RETAILING Value cost leveraging • Create greater customer value at higher costs • Leverage that value proposition to generate volumes • Repeat purchases • Greater volumes means greater contribution • Leads to higher profits

  26. STRATEGIC ISSUES IN RETAILING • Local suppliers • Diversity of customers • More suppliers • Local suppliers have advantage over traditional suppliers

  27. STRATEGIC ISSUES IN RETAILING Trends • International trends • Food and grocery • Largest segment • More than 40% of the market

  28. STRATEGIC ISSUES IN RETAILING FAILURE OF SUPERMARKETS • Why Nanz failed • Poor understanding of consumer behavior • What went wrong • three factors

  29. STRATEGIC ISSUES IN RETAILING Three factors • Lack of clear value proposition • Falling prey to sourcing diseconomies • Ignoring the merchandizing mix

  30. STRATEGIC ISSUES IN RETAILING Lack of clear value proposition • Nanz a late entrant • Large unorganized retail players • High real estate costs and other overheads • Low efficiency • No clear positioning to customers

  31. STRATEGIC ISSUES IN RETAILING Consumer insights • Staples and perishables • Major part of the budget • Decides whether outlet is cheap/expensive • 70% of the consumers do their daily shopping at one place • If staples are not bought, consumers are unlikely to buy other products

  32. STRATEGIC ISSUES IN RETAILING Falling prey to sourcing diseconomies • Imitating western models • Centralized warehouse • Use of technology • High overheads • High volume required • Difficult in single stores • Major reason of failure

  33. STRATEGIC ISSUES IN RETAILING Ignoring the merchandizing mix • Profitable products • Working on average gross margin • Cannot be same on every product • Sourcing from farmers • Eliminating middleman

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