Organized Retailing Scenarios-India

The Future of Organized Retailing-A scenario Planning Approach

Introduction

Organized retailing caught the fancy of corporate India sometime back and continues to enchant them endlessly. The foray by corporate houses into this sector has been the highlight of investor attention in the last few months.

It has been proved beyond doubt globally that the flows of people, goods and money through a retail supply chain made the retail business a prime focus of some of the most influential corporate players in the developed economies (European Commission 2003: European retail trade generated sales of Euro 1518 bn; created Euro 292.5 bn in added value and employed 12.4mn people). These statistics show that the retailers have become very active agents in the value chain than being intermediaries between suppliers/manufacturers and consumers. The retail activism led to increasing complexity (large widely spread organizations, managing multiple product supply chains, managing large amount of data and above all competing with larger organizations to attract the attention of investors) in terms of the whole gamut of operations. They have been integrated well with the front end retail marketing leading to the immense development of the sector. The integration led to reconfirm the belief of the corporate players that the retail segment is here to stay and will become an integrated part of the market. The evolution led to investor interest and further progress is a foregone conclusion. This is the story so far in the developed economies.

The conditions in developed economies and India are not the same today. The model for Organized Retailing for a developing economy like India may need to be different than what it is in developed economies. The evolution of organized retail business in Indian Context may follow its own path and need not traverse the same path as of developed economies. The current trends show that 50 million sq ft of quality space is under development and developments in 7 major cities to account for 41 million sq ftdevelopment with 300 malls, shopping centers and multiplexes underconstruction. The plans are afoot to open 35 hypermarkets, 325 large departmentstores, 1500 supermarkets and over 10,000 new outlets. The proposed investment by the end of 2008 is expected to be US $ 10 billion into organized retailing.

The objective of this blog is to explore the plausible futures of Organized Retailing in India using an approach of Scenario Planning.


The focal question

There are continuities and discontinuities in the manner in which environmental factors affect the business of any organization. Unless the organization is aware of these changes the planning process lacks the punch. Sometimes the survival of the organization itself may be in danger. A contemporary example is visible in the manner in which deregulation of the Oil Sector has evolved.

When the deregulation of Oil sector was mooted it was assumed that the process will help an open market scenario to evolve and hence corporate players went on to develop infrastructure. After a period of five years the scenario that unfolded indicates that there is a discontinuity and open market is still a far cry. Control by government and existence of subsidies continues to create a structural deficiency in the whole system. It may be possible that some of the investments may be proved to be wasteful in the long run. If a question has been asked before venturing into the sector by those private players like Reliance, Essar about whether the world will look like what they are assuming in a period of 10 years then probably they would have looked at scenario which is different from what it looked at that time.

Thus formulation of the focal question creates a canvas for identifying the fundamental assumptions we make about the future and plot the trends that can emerge. The focal question can be different for different businesses and hence care has to be taken while defining.

The focal question for building scenarios of the future of Organized Retailing in a developing economy like India revolves around a few trends of the past. Some of the trends are:

The state has been continuously torn between its responsibility towards the majority and forces of globalization
The unorganized sector enjoys a huge support from the power groups and any factor that affects the unorganized sector of the economy has a political fallout
The state is considered as an agency to protect the interests of the unorganized sector
The globalization of the economy is progressing at a reasonable pace and this trend is creating more and more issues of governance for the state.
The state is forced to be the regulator in the interest of the economy and at the same time promote the economy in a healthy manner.
The state is being put under pressure to provide security to the citizens due to the violent landscape that the country has become due to unforeseen acts of terrorism
The issues of corporate governance which were not on the agenda of the state earlier have suddenly caught the government by surprise due to investor activism.


View above the focal question for evolution of Organized Retailing in India for the next ten year period is how the state will resolve the dilemma of market efficiency and social responsibility.


It is not known today as to how the future will unfold while resolving the above focal question or dilemma for the business of organized retailing in India. Different futures could be unfolding depending on the interplay of various critical drivers and uncertainties and predetermined trends. The four scenarios have been for different futures and any one of them can unfold. Sometimes a combination of scenarios can also unfold. Each of the scenarios is described below. The scenarios also help the entrepreneurs to have a fresh look at the validity of a host of assumptions that have been made while working out business models for organized retailing. The scenarios also will help the organized retailers to keep a continuous watch on the environment to see the emergent signposts and make changes in their business models and suitably initiate change management measures in their organizations.

The Boom

The boom scenario in a nutshell is the most favorable situation for organized retailing. Market incentives are at work in all aspects of the economy and society. The State or government encourages the development of organized retailing and allows entrepreneurs to expand and claim incentives from the market and also enjoy the fruits of favorable regulation. Governments, regulators and investors adopt a sustained long term perspective in creating conditions for an unprecedented growth of organized retailing.

Organized Retail industry finds vociferous support from the Farming community and manufacturers alike. In the farming & groceries sectors it manages to eliminate the scourge of middlemen thus delivering better prices to farming community. The farming community also derives the much needed security due to the long term and quantity tie-ups & guarantees the “Organized” retail industry promises and delivers. Even the manufacturing community feels comfortable as the peaks and lows of manufacturing load evens out thus enabling them to plan their productions better and consequently afford better wages to their workmen. This serve the dual purpose of satisfying the “vote bank” and political masters interested in vote banks and creates a favorable impact on the regulators. From the regulators perspective organized retailing improves tax collections to state governments. It dramatically reduces the tax evasion so much prevalent in unorganized retailing forcing the regulators to sit up and take a positive note of the contributions of the industry.


The economy grows at a rate higher than 8.5% with major contributions from service sector and IT sectors. The government supports agriculture through subsidies on power and fertilizer without losing focus on growth of other sectors. It incentivizes the entry of capital into country in general and allows FDI in retail sector in particular.

The real estate which is very essential to the growth of organized retailing is affordable because more land will be released for non agricultural activities. The government rationalizes the stamp duties and registration fees leading to increase in transactions. The governments make the conversion of agricultural land to commercial purposes easy through regulation and support. Urban renewal becomes a focus area for the government and archaic laws on land ceiling will be phased out. The government allows more FDI into the real estate sector leading to increase in competition between developers. The renewal of the landscape in urban and semi urban areas progresses at a fast pace leading to reasonably priced real estate. The business houses increase the acquisition activity in a focused manner and lock the lands for construction of retail malls. The affordability of real estate will spur developers to create vast townships for residential purposes and thus creating captive customers for the organized retailing. The retailers look for opportunities in creating monopolies in those markets. These vast townships have people with higher incomes and they ensure a steady flow of cash to the retailer.

Retailers are helped substantially by increasing migration of people from rural areas to the urban. Education and employment promote migration. Centers of education and employment attract people to migrate and thus create new customers for the retailer. The growth of service sector and IT industries spreads to all parts of the country resulting in higher migration and increase in number of customers whose growth in incomes continues at a rate of around 20% .The average spend of each household on items that improve the quality of life increases. Retailers facilitate customers to experiment with new and innovative products. The economy showing a growing trend and employment opportunities freely available within the country, there is growing migration from abroad by Indians who will form niche customers for the organized retailing business. They also bring a change in the demand for products based on their earlier experience in more developed economies.

The demographic trends favor retailers because of increase in employed youth population increases leading to higher disposable income in the society. The retailers focus on marketing those products which hold an appeal to this segment of the population. This starts a new trend of using retail space for providing entertainment. The customers look for a real one stop shop for consumables and also entertainment. Society sees leisure trends more and people seek entertainment. The speed and stress of life prompts the Retailers to provide choice of entertainment as a part of their business model. Retailers in captive townships specialize in such a concept more than those retailers dealing with dispersed population.

Growth in service industry continues at a very healthy rate and this improves the employment opportunities. The new generation jobs attract the younger population leading to increase in the disposable incomes. This increases the tendency of people to eat out more than before and hence the items required for domestic cooking see a stagnant growth. The choice for ready to eat foods and eating out is more prevalent. The focus on food items and entertainment by retailers particularly in captive townships generates better cash flows.

Employment of women in various sectors increases due to demographic, political and cultural pressures. The service and IT sectors employ more women and this leads to a rise of a special customer segment. The retailers study this segment more and make suitable changes in their business models based on the spending pattern and tastes. Retailers are compelled to allocate separate time and space for women shoppers. It is not surprising if there are some retail shops where only women are allowed to shop or separate sections are created for women. Creating an attraction for women to come and shop will be a challenge to the retailers in a BOOM scenario.

The increase in the population of senior citizens is seen due to better health care. The pension reforms take place leading to higher incomes for the pensioners. The pensioners spend more money on items that lead to better quality of life. Retailers look at such items that are patronized by this segment of the population. There is huge demand for health conscious foods because of increase in the number of senior citizens and this is sizable segment for retailers. One of the dominating trends is the expenditure on health care products by population from all segments i.e. irrespective of age. There is a general concern about being healthy and also look healthy in people of all ages. Customers look for products in this category. Since there is a degree of difference between rural and urban areas, retailers take a segmented approach and provide the products.

Retailers evolve strategies to integrate their business models with the lives of the customers. Organized retailers even while grappling with their size and organizational related issues manage not only to scientifically study but also anticipate the buying behaviors of customers and deliver better value to customers.

It is seen that retailers l use the available real estate to rent space to social functions. The retail chains provide space for business meetings and this indirectly generates more footfalls for the retail malls. Retailers create their own unique selling propositions to attract customers by providing different services depending upon the local culture and societal trends. Retailers integrate their business models with the lives of their customers.

The government’s attempts to control terrorist activities across the country succeed. The various political parties come on to a common platform to tackle the violent activities. They succeed to curb the entire activity by strengthening the enforcement mechanisms. The government generally succeeds to create a climate of trust and safety to the citizens by overcoming the partisan politics in the interest of growing economy. In addition to the efforts by the government, the retailers make investments into improving the security in their premises by employing competent security personnel and also using advanced technology to avoid human failure in security matters.

The state focuses on building better infrastructure. The government encourages more private participation in building roads and operating rail road also. The international community provides funds to build infrastructure because of two reasons.

v The stagnant economies of the developed nations do not provide enough opportunities for investment.
v The demand for goods in developing economies has to be tapped to keep their own economies buoyant.

If their economies have to survive, it is necessary to remove infrastructural bottlenecks in the developing economies. India is a favored destination for the investment into infrastructure. Due to better private participation, there is more corporatization of infrastructure companies and quality of roads, ports and airports is better and in some places meeting international standards. Better infrastructure also helps in faster and safer movement of goods from the source to the end user. The retailers operate with lower inventories because of the rise in confidence in uninterrupted supply chains. Better infrastructure results in reduced traffic congestion leading to people finding parking spaces easy. This also improves connectivity for customers who do not use personal transport often, thus enabling customers reduce their travel times facilitating leisure & entertainment pursuits.

Organized retailing becomes a great source of employment to the whole country. Each of the retail chains evolve their own methodologies for recruiting, training and retaining the skilled manpower required. Each retail chain has specialists with critical skills like supply chain management, packaging and display and IT. Sufficient bench strength is created to take care of attrition due to migration of labor. Each of the retail chains open up finishing schools to shape up the kind of employees required to run the business. These schools are located near to the existing educational centers so that tapping people is easy and less time consuming. Retail chains also make finishing schools a business by itself by making their services available for needs of other businesses. Such kind of collaboration between businesses helps them to reduce the ill effects of attrition. B-Schools develop and design courses especially for Organized Retailing and thus a new business model for B-Schools emerges. In a BOOM scenario, businesses start believing that collaboration and not competition is the key to success. This belief results in establishment of common platforms not only in buying from suppliers but also in managing the human resources. Generating vast trained manpower to man and talk to the customers is a key challenge for all retail chains in this scenario.

The BOOM scenario also sees healthy competition from the unorganized sector because of the delay in change of mind set of the customers. Indian customer has a mindset of buying from the retail shops round the corner. The average spend of Indian consumer is still low compared to the global level. As a result people spend only that that much amount of money at a time required for minimum number of days. There are a large number of customers who purchase daily for their needs because they do not have enough to buy once in a month. Round the corner retailers survive and competitive till the per capita income goes up drastically. The next ten years does not see such a drastic change and hence the organized retailing lives with competition from the unorganized sector. The collaboration of course results in the smaller retailers becoming direct customers of the organized retailers for some time. Specialist goods like furniture, electronics, books and sports continue to enjoy the patronage of the traditional customers and retailers devise innovative initiatives to create a competition to them. However the lure of expansion prompts these specialists to create an alternate channel through the organized retailing. This kind of mutually beneficial business relationships will become the hall mark of organized retailing under the BOOM scenario. The unorganized sector has a strong political backing and hence is not threatened by organized retailers. The government enacts regulation to promote general growth of economy and the retailers have to live content with the coexistence. The urban landscape sees organized retailing dominating the scene and the unorganized retailing monopolizing the rural market. The coexistence continues till the migration levels create a gap in demand between the urban and rural segments.

The winds of liberalization and political compulsions result in opening the retail sector to FDI. There is new competition to the Indian retailers. This competition is from much stronger and experienced players. The experience of global retailers and their deep pockets, and wealth of information regarding the customer preferences changes the Indian Retail Scene for ever. The skills of global retailers are much superior to those of Indian retailers and it is a challenge to cover the gaps. The global retailers dictate the rules to the market in the next ten years. The franchisee model continues to work alongside the organized retailing and the specialist retailers face heat from the franchisees.

Innovations in refrigeration technology are seen because of huge demand from the organized retail sector. The retail sector looks for power saving technologies for refrigeration and skilled manpower to maintain the equipments. The demand for quality being very strong from the customers, retailers are forced to invest on top of the line refrigeration equipment.

Retail business sees a new ally in IT and customized applications for sales and supply chain are in great demand. The availability of surplus bandwidth prompts retailers to seek fool proof IT systems for conducting the business fast. Since customers do not like to wait, retailers exert to give the fastest service. Development of suitable IT systems is seen as a key differentiator in customer service.

Oil prices are stable and do not create unwarranted disturbances in the economy. The growth in oil prices is commensurate with what the economy can absorb and hence cause no alarm. As a result transportation costs are stable and affordable and there are no shocks to disturb the business models of the retailers. The deregulation of oil sector is completed and price competition sets in. This will lead to entry of global players and oil is no longer a subsidized commodity. Oil prices being stable and infrastructure being good, the retailers will look for better management of inventories and supply chain.

The power situation across the country is good enough to cater to the additional demand of the malls. Government brings in reforms to allow private sector to generate and distribute power more and more. Organized retailers have their own captive power plants. The state promotes huge private investments to develop hydel and coal based power plants to meet the ever increasing demand. The cost of power is more or less stable leading to manageable overheads for the retailers. Since more and more people work longer hours there is a trend to keep the retail malls open late into the night. This allows the retailers to compete more effectively with unorganized sector but results in increase in power consumption. This is a tricky trade off for the retailers in this scenario.

Government acts in a responsible manner to address the grievances of customers by making the regulation more effective. The retailers are under constant pressure to deliver quality consistently failing which the footfalls reduce and unproductive litigation continues. The demand for quality is a challenge for the retailers in this scenario. The quality aspect does not relate only to the consumable portion of the goods but also to the packaging, hygiene and service also. Since most of the goods are not manufactured by the retailers, the service level agreements are drafted carefully. The failure of retailers to ensure enforceability of agreements is a predictable surprise in this scenario.

The growth rates in this scenario will be the highest of all the scenarios. The challenges to the organized retailers also will be tough. The issues of pricing and hiring will dominate the retail landscape for them. The economic forces dominate the democratic processes and fuel the growth of organized retailing in the country.






The Doom

The doom scenario in a nutshell is about the pressure of reducing market incentives under unfavorable governance. It is interplay of these two forces that creates hurdles for retailers in realizing their expected returns with no visible support from the state. The government and regulators act in an unconcerned manner due to political compulsions and do not believe in changing anything. There is neither short term approach nor long term perspective. Citizen’s voice is not heard and impact of global forces is ignored. Government lacks the vision to see the future and believes in managing the current reality.

The political situation is largely stable but the government can not keep pace with the aspirations of the people. The diversity of political outfits will continue to plague the government as a restraining force in taking the economic reform process at a faster pace. India in this scenario is a great democracy but not a great economy. The forces of castes, regionalism and communalism play a very vital role in leashing the progressive economic reforms. The lack of consensus on issues of vital economic importance will be significantly visible in the DOOM scenario.

The government is under continuous pressure of diverse groups to give more incentives to the unorganized sector and at the same time burden the organized retailers with excessive costs of doing business. The government intervenes to fix up the buying prices from the unorganized sector and political groups facilitate this process. Government appoints regulator to ensure that the unorganized manufacturing or agriculture sectors are protected from any exploitation. The government starts incentivizing the traditional retailers in terms of the buying prices and regulator will be maintaining a balance between organized retailing and unorganized sector. The free market scenario remains on paper and the government acts coercively. This dilemma puts the organized retailers into a difficult situation.

Entry of foreign players is seen in bits and pieces because of the oscillating attitude of the government. The foreign players do not see a road map on policy making from the government and hence proceed very cautiously in setting up shop in India. There is craving for allowing franchisee arrangements indiscriminately and this creates long term hurdles for those foreign players who have plans to enter into the Indian market on their own. Apart from the political will, different quality standards create another area of discomfort to the global players. The bone of contention will be the trade off between the quality and price that can be offered to the Indian market. The outlook of the foreign players is “wait and watch” rather than being entrepreneurial in the Indian Market. There is a sign post in this direction when we trace the history of Shell in the petroleum sector.


In spite of its best intentions, the government is not in a position to remove the infrastructural bottle necks for smooth flow of goods. The cities and towns burst to seams and road travelers are highly irritated about the road conditions. There are huge traffic congestions and parking spaces become scarce. The lack of parking spaces compels customers in major town and cities to avoid shopping during weekdays and peak hours. The government continues to plan without much success in execution and the situation becomes grim. The retailers are faced with unprecedented situation of huge investments and reduced footfalls due to the impact of unbearable traffic conditions. Due to high real estate costs and heavy infrastructural bottle necks, the migration of people from rural to urban areas is less than what it is in Boom scenario. This results in stagnant population in cities and towns and reduced footfalls into the retailer’s premises.

The customers are constrained on account of inconvenience in reaching the retail malls in spite of having higher disposable income. Hence they get attracted to e-business rather than being a shopper personally in a mall. Higher awareness of IT also results in customers seeking to spend through e-channels. The retailers are forced to consider alternate methods to service the customers at their doorstep. This gradually results in reduced footfalls in the retailer’s premises and hence further escalation in costs of maintenance .Due to general economic conditions a large chunk of population continues to buy the requirements on daily basis and hence will keep the retailers in a state of suspense regarding the customer preferences. Some innovative retailers study how the micro events are likely to be mega trends and change their business models fast and quick.

The real estate boom continues leading to spiraling costs to the retailers. The governments at the local levels continue to adopt the policy of generating more revenues from the real estate transactions and real state developers will be forced to go through a plethora of ever changing rules and procedures. This leads to increased costs on account of real estate acquisition. The impact on increased costs of acquiring real estate compels retailers to absorb higher overheads. This makes them less cost competitive compared to the retailers in unorganized sector.

People in general become health conscious and prefer to insist on quality standards before eating out. The retailers while providing eateries inside the malls do not focus enough on this aspect and lose out on revenue and high margins that are available from eating joints in the malls. Food joints specializing in providing healthy food become common place spoiling the revenue model of the malls. Hence people look more at the entertainment potential of the malls more than places for family dinners. Hence further erosion in the margins of the retailers. The local governments which continue to be starved of funds raise taxes on those food joints within malls leading to higher outgo for the customers and hence reduced patronage. Unfavorable governance in a country like India can destroy the strongest business models.

Reckless proliferation of malls & large format retail shops in the “Doom” scenario, results in huge shortage of competent people at all levels. Investments are made recklessly without thinking whether there are sufficient people to manage the business. There is huge shortage of front end sales people and managers find it difficult to deal with the huge gap between demand and supply. Attrition is high and business gets affected due to lack of competencies. Investors continue to operate with an old mental model that money gets people and hence do not think proactively about the deeper issues and root cause solutions. The investors do not realize that sustainable business model can not be built unless people and processes are in place. Human Resources are a badly managed situation in a Doom scenario .HR managers do not come out of the transactional nature of their jobs and do not see the transformational aspect. This affects the business growths everywhere. Being unable to acquire suitable human resources, investors will be interested in taking their investment back and surrending the business to people who can manage the vagaries. The punch of organized retailing is gone and no longer remains an attractive proposition for the investors. A churn out happens leading to a spate of mergers and acquisitions.

The increase in youth population across the country provides an opportunity to tap the talent. Similarly there is huge talent available in the senior citizens whose life expectancy goes up due to better medical care in the country. The failure of the organizations in seeing the connectivity between the energy pool of youth and experience of the seniors results in lack of proper guidance to the youth and waste of the experience of the seniors. Very few organizations will understand that the knowledge and experience of the seniors can be tapped efficiently to transmit the same to the youth who have the energy and talent to absorb the transmitted content and create a leadership train in organizations. Very few retailers have an organizational outlook (The dominant outlook is to treat retail like a project) of their business and hence do not have the deep insight to make a sustainable model of the business. The organizations continue to face problems of attrition and war for talent razes unabated.

The terrorist activity remains a dominant agenda for the governments at all levels and political compulsions, short sighted election agendas prevent the government from acting ruthlessly. The incidents of terrorism make people seek safety within the four walls of the home more than venturing out for entertainment and shopping. Terrorism celebrates this trend by targeting frequently the public places and people avoid visiting public places. This is the hardest factor to hit the organized retailers who would like to make shopping a fun. The inability of the government to provide a safe and secure business environment stifles the growth of economy leading to stagnant growth rates. The retailers suffer very low returns on their investments and feel disenchanted.

DOOM scenario sees more women in employment resulting in rise of disposable income of the families. Women may not prefer some metros and cities and urban areas compared to others because of general deterioration in law and order situation. The restriction on choice of cities affects the organized retail business. Retailers contend with lesser revenues from this segment in absolute terms. It is seen that such women who are employed would prefer to shop in the neighborhood stores rather than visiting a retail mall. The twin effects of unsafe conditions and traffic congestion would be driving away a big section of customers who would have otherwise been attracted to the organized retail stores. It is generally seen that women contribute increasingly larger revenues to the organized retailers in specific geographic segments which have better traffic conditions and safety is assured.

High and fluctuating prices of crude oil are a permanent feature of the DOOM scenario and unpredictability of oil markets across the world will be a matter of concern. Due to the high oil prices inflation is on the higher side and prices go up. Retailers revise prices often upwardly resulting in reduced footfalls and consequential increase in pressure on the margins. The overhead costs for utilities (impact may be less for large format stores) are seen to be moving upwardly because of the increasing oil prices. The inventory costs also go up leading to further pressure on margins. The government acts irresponsibly and does not interfere to change the landscape but steps in only to protect the interests of the retailers in unorganized sector. The increasing inflation and the consequent cost of living reduce the disposable incomes and people are seen spending in parts. The average spend comes down and price sensitivity plays a major role in the purchasing decisions of the customers. The retail business fails to attract customers to spend money at one stroke.

The power situation across the country is grim. The power sector reforms do not keep pace with the other sectors leading to reduced availability of power. This leads to higher costs of power for the retailers. Since the customers spend more time in commuting and offices, the shopping hours gradually extend late into night leading to higher power consumption. This increases the overheads and thus cost competitiveness will suffer. The retailers are forced to keep different pricing models for peak hour and off peak hour shopping.

Organized retelling’s overhead costs continue to see an upward trend because they maintain heavy refrigeration equipment and power consumption goes up. The retailers are compelled to spend on sophisticated and costly security gadgets to give a sense of comfort to the consumers who visit their malls. Information technology drives the supply chains and heavy capital investments will be made. The initial costs of setting up the systems are exorbitant and retailers start feeling pinch of the interest costs as they lose footfalls.

The management of economy being more governed by preferences for unorganized sector does not give enough support for organized retailing and hence the burden of managing the business becomes heavy. As result the investments do not give sufficient returns and organized retailers have to live with huge non performing assets. It is truly a DOOM scenario.


Cheers

Cheers scenario is about how the organized retailers attempt to improve the market efficiencies by overcoming organizational constraints and ineffectiveness and make the business sustainable over a longer period in an environment of favorable governance of the economy and country. The outlook of the government is more long term and visionary. The Retailers fall short of expectations because of their lack of organizational outlook and understanding the stakeholders.

The governance resolves to provide a favorable climate in terms of public goods. The first task addressed by the government is to create an environment of security to the citizens. The administration at all levels across the country gets aligned to tackle terrorism and other forms of disruptions with a firm hand. The political parties rise above the small heartedness of elections and come to a common platform to address the issues of security. The empowerment of anti terrorist agencies and other policing outfits generates a sense of confidence in the citizens in general. Stringent action in a concerted manner is taken by the government to curb loss to the lives and property of citizens. There is a general climate of trust and harmony amongst various sections of the society and people start seeing the brighter side of governance.

The management of economy is done in a more professional manner keeping the overall objectives of general upliftment in mind and the balanced approach is well received by all sections of the society. The government controls inflation and allows more funds through financial institutions for entrepreneurs to pursue wealth generating activities. A host of concessions are allowed for new business ventures because the good governance improves the revenues of the government by better tax compliance.

Due to faster enforcement of law and enactment of new laws, India is seen as a transparent place to do business with. Huge foreign investments come into the country and government proactively facilitates establishment of businesses through streamlined and easy procedures. The government shifts its focus from involving in business to improvement in governance and the result is a hassle free business environment.

Government works constantly to improve the infrastructure of the country and funds are made available from internal accruals and international agencies. They create an interest burden on the economy as a whole and the government shifts from a free service mode to making the citizens pay for the services. Toll roads become self earning investments where the user pays for the better service. Enforcement of contractual obligations on the road construction firms improves to the satisfaction of the users even if they pay for the service. There will be general realization that the government is doing the right things to improve the quality of life of the citizens albeit at a cost. The highways and arterial roads are always maintained in good condition and regulators are active to ensure the same. The government allows private investment into infrastructure in a sensitive manner and resulting in better airports, sea ports, rail roads and highways. These investments have longer gestation period and hence the government provides for easy availability of cheaper funds through financial institutions. The organized retailers will have a host of options to choose for management of the supply chains. The creation of infrastructure takes time but progresses.

The urban renewal gets the desired focus at the federal and local level leading to not-so-congested towns and cities. This facilitates the organized retailers to see more footfalls on constant basis. The improvement of revenues generates hope and excitement for the future. The anticipation of better returns in the future continues to excite the retailers and results in improving the internal efficiencies. The market moves at a slower pace than the retailers and the gap builds up healthy competition amongst the retailers.

Organized retailers have now more time to spend on management of their business because the regulation is hassle free and does not require any special management. Organized retailers are more adventurous in bringing better ideas into business and constantly try to improve the incentives that are market driven. The general economic growth helps them to create economies of scale in organized retailing. However the return on investments takes longer time to come because the revenues fall short of the expected returns. This however does not mean that the Organized Retail is running losses. Triggered by good economy growth the retail revenues grow but slowly. It is because the results of good governance come slowly as the system is large and wide.

The government allows foreign direct investment into the country and this excites the customers. The variety and availability of new products generates a healthy interest in the eyes of the customers. It takes time to materialize into revenues but does not fail to create excitement. The foreign investors compete with local retailers in tying up with local suppliers and quality becomes better across the chain. The pressure is built by the global retail firms on the local retailers to improve the quality of products and services. This forces local retailers to find ways and means of improving quality without losing the competitive advantage. The pressure on margins remains heavy and revenues do not really cover the investment costs initially. The retailers wait for the system to pick up speed and signs of speed are constantly monitored. However the global players are cautious in making substantial investment at one go and incremental progress is seen.

The increased activism of the pressure groups like NGOs and Consumer Forums and other agencies triggers greater sensitivity in the minds of retailers regarding the quality and service aspects. The laws become enforceable in a general climate of trust and harmony. The retailers realize that the business model needs a much longer time period to generate the revenues that have been anticipated.Competiton from global retailers and activism of pressure groups and the educated customers do not allow the retailers to cut corners to improve revenues. The retailers are aware that the customer has options and dissatisfaction in the minds of the customers can throw them out of the business. The rush to improve revenues by cutting corners is not considered a viable option by retailers in the interest of long term sustainability.

The retailers realize the need for sourcing products from international sources. The experience required to enter into agreements and contracts at international level is found to be lacking in the organizations. In CHEERS scenario organizations fail to keep pace with the requirements of the system in general but retain a positive attitude about the future and act decisively to improve the organizational efficiencies.

Retailers realize that the organizations can not be run like family owned business and need for more professionalism is felt strongly. Those organizations which adopt the effectiveness measures like Learning Organization are bound to succeed. The leadership style undergoes a change from “Command and Control” to “Disaggregated Style”. This becomes a huge challenge to the organizations and successful organizations become great places to work. The Organized retailers feel that money alone can not compel people to stay with the organizations. Those organizations realize quickly that attrition can be handled only when transparent and motivating work cultures are created in organizations. Teams achieve results and organizations become living systems. The healthy competition in due course of time pushes out those retailers who fail to create organizational synergies. Mergers and acquisitions take place often and merging two organizations becomes a challenge for the retailers. This requires special skills which are not easily available.

Though the government still favors promoting the unorganized sector by having regulators to oversee healthy procurement process for the manufacturers, and absence of middlemen is seen. The organized retailers set up supply chains in such a manner that procurement takes place directly from the producers of goods and resulting in better prices for the producers and manufacturers. The unorganized sector also has access to the same manufacturers and producers. The corner stores in each locality outsource the supply chain activities to the service providers and hence they also become competitive along with organized retailers. It is a coexistence that the government truly desires and permits. The market size is sufficient enough to accommodate players of all sizes. The sourcing of product is done from the same places and hence there is no perceptible difference in quality except for the packaging. The economies of scale favor the organized retailers reduce costs of packaging but still the unorganized sector is competitive because of reduced pressure on margins for them.

With economy looking up there is more disposable income for people in general and hence the demand for lifestyle products. People spend more on products that give them a better feel of life. The pace of such tastes will be varying from region to region and depend heavily on the cultural trends on the region. The environmental scan by the organized retailers will be with a view to leverage on the emerging trends and tastes of the huge youth population.

Senior citizens create a niche market for the organized retailers in terms of healthcare products and life style products. Each of the organized retailers continuously search for creating a USP for themselves and demographic trends will be continuously under scanner to create niche market spaces for themselves by leveraging youth trends and tastes.

Eating out and entertainment become attractive business propositions for retailers. The retail formats make these two trends as an integral part of their business models and continuously evolve them as huge revenue earners. The government improves the safety and security situation in the country and hence the retailers have more footfalls for these two trends. It is not the pure demand for retail products that makes organized retailing exciting but the ability of retailers to make shopping a fun. The growth of incomes and service industry facilitates this process better. The early birds in the retail industry realize these paradigm shifts and integrate lifestyles into their business models. Each of the retailers attempts to create a niche for them in the ever growing market.

Specialist goods like furniture and electronic items pose a challenge for the retailers when attempt are made to integrate them into the retail format. It is because of the special skills required to convince customers about the ability of retailers to cater to their special tastes. Any product that is desired by the customers because of taste rather than need poses a serious challenge to the retailers. It is an area that the retailers will find difficult to manage. The government’s reluctance to stop promoting those industries which provide livelihood to large number of artisans who make special products adds to the woes of the retailers. The evolution of the organized retail is much slower than anticipated and retailers fail to create a niche for themselves in these products.

The packaging, branding, advertising and display mechanisms get more integrated because of changing preferences of customers and higher investments are needed. Additional investments and expertise required for the integration pose a challenge to the retailers who are already under pressure and intense competition and reduced margins. The advertising for private labels catches the fancy of the organized retailers and media industry catches on this trend. Advertising becomes much more aggressively competitive and organized retailers either buy airtime in bulk on long term basis or attempt to create their own channels for advertisement on television.

The HR issues become very complicated because there is a supply demand imbalance. The organized retailers realize that there is a gradual increase in demand for the quality and quantity of human resources. The organized retailing requires front desk sales men and women in large numbers and the finishing schools are established by some players to train the recruits into retail culture. Some players would make them self sustaining by becoming supply sources of trained salespersons to the whole industry. Some of the finishing schools become certification centers because of the first mover advantage. Organized retailing also becomes a special course in business schools. There is huge supply of youthful energy available for tapping for the organized sector. But the skill development programs lag behind and thus open up a need for better HR processes in the organizations.

Since supply chains become very tight and competitive, people with supply chain and logistics skills will be in great demand and industry realizes that there is a need to retain people with these skills at any cost. Hence the costs of specialists will go up leading to further pressure on margins. In addition the man managers at middle level are also in short supply. Better interface between industry and the business schools creates a framework for development of soft skills in business school pass outs. Training in soft skills becomes a sunrise industry all across. Individuals with coaching and mentoring skills thrive on this new demand created by organized retailing.HR becomes a strategic asset and large scale investments are made to improve the HR skills in organized retailing sector.

The oil prices remain stable for longer periods facilitating greater stability to the economy. The power situation improves due to encouragement given by the government to private investors to set up power plants and market. The regulators align themselves for the general growth and a balanced view of things is taken. The organized retailers’ need for more power reasonable costs is satisfied and the late hours shopping become a new trend.

The CHEERS scenario generates growth rates for retailers reasonable enough to force them to look for long term sustainability by improving their operational efficiencies under the favorable climate of governance.


Limits

It is the scenario in which organized retailing attempts to improve the market efficiency and avail the incentives provided by the market in the face of unfavorable regulation. It is a scenario in which the retailers will be tempted to look at the incentives provided by the market with a very short sight. The art of long view is completely missing. The insecurity generated by the climate compels the retailers to look at short term gains and no thought occurs for long term.

The government pledges great support to the development of organized retailing as an industry openly. The reality is different. It is only a limited support. There is no great alignment between the central and state governments on the policies regarding the support that organized retailing needs. The reforms process moves slowly and faces hurdles at every level. The labor reforms do not find universal support and hence industry continues to be burdened with archaic laws. The procurement prices of the essential commodities are still in the controlled regime directly and indirectly and hence the retailers face pressures in streamlining the procurement and purchase from the producers. The organized retailing industry proves to be resilient in silently pursuing the agenda of making long term commitments with the producers on viable profit sharing basis. The presence of pressure groups is not ignored but managed at every level. The political formations are cleverly manipulated to become parties to evolving the arrangements. The government indirectly takes measures to provide comfortable platforms like special agricultural and economic zones, tax holidays and exclusive export zones and similar facilities.

Organized retailing is aware of the compulsions of the government in giving full and explicit support and hence creates its own pressure groups within the government to lobby for direct and indirect benefits for the industry. This is not also done in a cohesive manner and mostly done behind the screens. The government functionaries are susceptible to such wheeling dealing and hence organized retailing considers the costs of the manipulations into their business models. The market incentives are highly attractive for the organized retailers to stretch themselves to influence the regulation by any means possible to derive the benefits out of the business scenario.

The market incentives are not only considered in the limited context of returns on investment into retail ventures. The value of the future escalation in the real estate prices and rentals, ability to vertically integrate their own other businesses with retail and the competition amongst business houses for superiority and leverage on their ability to cross sell products are all part of the market incentives. Organized retailing seeks ways and means to improve the returns on its investments not only through the revenues earned through products sold off the shelf but also in any number of unconventional ways.

Instead of competing with the unorganized sector the organized retailers develop their own business model as a service provider to the corner retail shops. The unorganized sector reduces its dependence on the middlemen .The organized retailers in effect become suppliers for the unorganized sectors. The supply chains of the organized retailers are fully utilized to bridge gap between their own requirement and capacity. It is seen as additional revenue to the organized retailers who can operate on higher economies of scale and thus derive incentives of the market scenario. In effect the name of the game is that the returns are important irrespective of where they come from.

The organized retailers take conscious view of the security situation and do not depend upon the government to provide security for their customers and businesses. Instead of looking at a bigger need for security organized retailers look internal and make investments into security for their businesses. Extensive surveillance equipment is the key to the security. The incidental benefits being monitoring the employees and prevent theft and pilferage. Organized retailers use integrated IT solutions for protecting the accounting processes and bring in necessary transparency required for meeting the norms of corporate governance.Corporatization of organized retailing increases the costs for the retailers and build more pressure on margins. This is done with a view to improve the market incentives rather for compliance purposes. Hence compromising the compliance process and managing the presence of regulators is seen everywhere. Security solutions become the norm of the day for the organized retailers. They realize that customers are not going to visit their establishments unless they feel secure about the environment at the retail malls. Unless this is done they do not expect customers to shift from the locality stores to the retail malls.

The income levels go up in towns and cities leading to higher disposable income. There is a strong desire in the youth to improve their quality of life and hence flock to the malls for better labels. Their ability to pay for brands of repute makes the retailers realize the attractiveness of having franchisee arrangements from global players. Organized retailers proceed slowly on their plans to introduce their own labels and depend largely on brands that are globally positioned. The main focus of organized retailers is on ways and means to maximize revenues with the existing infrastructure and follow the adage “Make hay while the sun shines”.

The preference of youth educated population continues to be for IT related jobs and organized retail finds the availability of people as a constraint to expand. Poaching from competitors becomes a common feature and executive search firms and recruiting agencies do excellent business. Organized retailers are aware that they are only attacking the symptoms and the root cause solutions lie somewhere else. But the short term solutions are so attractive that they forget the long term sustainability of their business models. Since it is a short game, shortcuts are acceptable. HR managers continue to work under huge pressure and find the job of recruiting people a horrifying prospect. The education system can not produce people for the new generation jobs and retailers do not put in sufficient efforts to create a structure that produces sufficient and suitable people for their businesses. It is ironical that huge investments in organized retailing are made without support of the government and without long term vision or perspective. That is the reason why the scenario results in limits to growth in the long term.

The government grapples with the issue of inflation and rising prices and is only partially successful. The unstable oil prices across the world because of geo and economic factors create pressure on local economy. The attempts at the global level to achieve peace and harmony are only partly successful and serious differences in approaching the global problems remain unresolved. The Indian economy can not remain unaffected by the global events and hence is caught in the trap of liberalization and protection to local markets. The subsidies to agriculture, petroleum and fertilizer industries continue to cause huge burden on the fiscal management of the country. The focus thus still remains on resolving the issues of majority and whole government machinery is working on managing the current priorities of the political bosses and a long term perspective becomes a casualty. The retailers also play the same game.

The migration of population from rural areas to towns and cities goes up leading to severe infrastructural constraints. The real estate prices go up and value to the retailers is enormous on this on this account alone. Government attempts seriously to match the development in line with the demand and fails to satisfy the expectations. Some of the cities can become unlivable and the retail industry faces reduced footfalls on account of congestion in the towns and cities. The ability of the retailers to service long distance customers is tested and found ineffective leading to the corner stores prospering well. The corner stores or locality stores use the same supply chain of the Organized Retailers and compete with them in the market .The retailers take time to evolve viable models to compete with unorganized sector in those areas. Retailers have better scope in upcoming towns to establish monopolies and create economies of scale. The cost of setting up operations in smaller town attracts the retailers. However because of the short term perspective the process goes slow and does not lead to the expected revenue.

Time becomes a commodity and customers expect good service in least amount of time. Retailers again fall below the expectations of the customers because of short term perspective about organizational requirements like manning, and IT etc. The pronounced managerial style of those in retail sector is also short term. The moment the perceived benefits are achieved, people leave the organization looking for greener pastures. The whole culture is driven by the immediate market incentives which appear attractive to compromise the long term interests of the business. Most of the investors are cleverly manipulated by the managers to receive short term gratification and serve mutual interests.

The growth of services sector sees the employment opportunities to women go up and hence higher disposable income for the families. The spending ability improves. The families would like to invest in housing and insurance more than spending on lifestyle products. The apparels, healthcare products and specialist products like furniture and electronic goods receive a boost and retailers can not compete with the specialist stores because of lack of knowledge about the trade and inability to cater to customized tastes and preferences. Users pay premium for customization and retailers have no expertise in customization of products.

It is a ruthless world of competition that retailers indulge in and media enjoys the revenues of aggressive advertising campaigns. Collaboration does not figure as an option in the scheme of things. In this climate of distrust and disharmony the retailers really do not pose enough threat to the corner stores. They fight for space in towns and cities leading to engagements that do not really challenge the traditional retailing business. The traditional retailers take advantage of their being unorganized and drive bargains with competing retail chains to get the best advantage.

Retailers attempt to vertically integrate the supply chain from the source to the end user with total control on the production, logistics and sales. The success solely depends on economies of scale and retailers wait for the dormant demand to pick up before making investments into vertical integration. The presence of diverse pressure groups creates hurdles in the process of vertical integration. Political situation favors activism by pressure groups due to compulsions and does not allow quick resolution of issues.

The enforcement of agreements between retailers and suppliers remains an area of constant dispute. The dispute resolution process within the ambit of legal system remains slow and long drawn. The legal professionals in retail industry will need to be involved from the beginning in drafting enforceable agreements. Retailers fail to realize this aspect and are forced to spend enormous amount of money on litigation at national and international level or forced to disrupt the supply chains. This is another fall out of short term perspective that retailers adopt and suffer incredibly in the long run.

The governance issues before the boards of retail companies become large and haunting. The compliance which is an insignificant issue with unorganized sector becomes a larger issue with the organized sector. This is due to the funding by shareholders for all expansion plans. Retailers having come up from a culture of non compliance grapple with the new reality and cursory attempts are made at compliance. The lack of internal transparent processes makes the retailers susceptible to the risks of merger and acquisition. The corporate legal profession flourishes at the cost of retailers who fail to create transparent operating procedures and processes in their organizations. The retailers operate with a mental model of making retailing as a project rather than a process. This is again is a result of short term focus.

The government, regulators, investors, managers and customers are all aligned to look at the short term results. The result is that there is a basic distrust on the whole system and loyal customers are a mirage. The loyalty programs introduced by the retailers are not found trustworthy by the customers and retailers are competitive to the extent of avoiding isolation rather than creating a unique selling proposition.

The growth will come for the retailers from many sources in terms of the money value but the sustainability of retail business is greatly threatened in this scenario.


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