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Strategy development for the Indian retailing sector

Indian private consumption in the year 2000-01 is estimated at about Rs 1,250,000 Crores. Simplistically put, this is therefore the size of total retail business in India. The present retail business is largely accounted for by over 12 Million retail outlets of all shapes and formats, and supported by street vendors, hawkers, food service outlets as well as periodic street Bazaars and Haats. Organized retailing accounts for a mere Rs 14,000 Crores or so (about 1. 25%).

Indian manufacturing sector has been kept on all kinds of leash including reservations under small scale. Over the decades, the sector has become highly fragmented and it will take years of effort to rejuvenate the same to deliver high quality products at competitive prices and under reliable delivery conditions. The urban as well as suburban infrastructure development has not kept pace with growth of population. As a result, there is more pressure on time due to increase in traffic and commute.

This has led to an actual “reduction” of distance that consumers travel from their “home” for non-work related activity. Consumers’ expectations in terms of product and services have undergone a sea change in the last 10 years and still undergoing major changes. Value was

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earlier having a single determinant: Price. Today, for the middle class and upward customers, Value is a complex equation having Quality, Comfort, Image and Convenience on one side and Price, Time taken, and Hassle to shop on the other.

Under these “operating” conditions, new Retail start-ups must have a very well thought out “Unique Selling Proposition” which on one hand enables them to attract consumers away from the traditional shopping options to come to their own retail outlets (and once they are in, to seduce them into purchasing) and on the other hand, offer additional Value to the consumers while generating the required additional operating profit margin to pay for the higher cost of operation (as compared to the traditional retail outlet that typically has practically no rental or real estate costs thanks largely to archaic real estate / rent control laws, and has practically negligible operating expenses due to a bare bone infrastructure and manpower). This refers to the category mix, and within each category – the width and depth of merchandise on offer, and its quality related selection. It can also refer to the choice of merchandise – if it is on the leading edge or trailing edge of innovation or fashion.

This refers not only to the commonly assumed parameter of “how many sales people are there to serve” or “if tea or a cola is served to customers” but to operational parameters such as “availability” of the promised merchandise at all times – in expected sizes, shapes, colors, assortment et al. Service can also refer to policies such as “returns” or “exchanges”, “warranties and guarantees”, availability of qualified personnel to assist customer queries or request for information. This is a crucial intangible and can be a function of several factors e. g. overall store ambience; ease of shopping in terms of layout of merchandise, labeling, check-out convenience and speed, access to the store itself including parking, customer relationship effort from the store management etc. Finally, this is the fourth major variable for creating the USP.

Low price itself can be the most important parameter in some instances, but more importantly, it can also imply the “appropriate price” as perceived by the consumer after subjectively assessing the impact of the other three variables mentioned above. As far as India is concerned, there have been relatively few start-ups with a clearly defined USP. Most have, so far, tried to offer all of product, service, experience and price without realizing that compromises have to be made on one or more if the business itself has to be financially and operationally viable. From a consumer’s perspective, she would obviously like the maximum choice with exceptional service and a wonderful experience – all at the lowest price!

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