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Retail: Classifying the formats - Views on News from Equitymaster
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  • Apr 18, 2007

    Retail: Classifying the formats

    Retailing is the final step in the distribution of merchandise - the last link in the supply chain (connection between the bulk producers of commodities to the final consumers). Retailing covers diverse products such as food, apparel, consumer goods, financial services and leisure. The Indian retail market, pegged at US$ 350 bn and accounting for 10% of the country's GDP, is large but highly fragmented (Source: IBEF). Organised retail in India constitutes approximately 2% of the total retail industry. The concentration of organised retail players is mainly in the top 10 cities, which account for 96% of the organised retail market. The growth in organised retail is being led by changes in consumer behaviour and is being driven mainly by the increased availability of shopping opportunities provided by the retailers.

    There has been a transition from the traditional retail sector to organised retailing, from small kiranawalas to big super markets over the years. Given the time constraint, convenience of shopping with multiplicity of choice under one roof is what consumers are looking for these days. And this has been the driving factor for organised retailing in the country.

    Formats like kiranas, traditional mom and pop stores, kiosks, street markets, exclusive/multiple brand outlets are traditional formats. While company owned and company operated supermarkets (Food world), hypermarkets (Big Bazaar), department stores (Shoppers' Stop), specialty chains (Ikea), entertainment (Inox) are modern formats. In this article, we have discussed the various retail formats and the value proposition that they offer.

    Retail formats can be broadly be classified into two types viz., a) Store format and b) Non-store format.

    Store formats: Store formats are formats based on the physical store where the vendor interacts with the customer. A super market, convenience store, department store, discount store, category specialist and malls are few examples of the store formats.

    • Department stores: A department store is a large store with a wide variety of products organised into departments such as clothing, house wares, furniture, appliances, toys and the like. The value proposition of this store is that it provides a one stop shop catering to varied consumer needs.

    • Super market: Super markets are extremely large self-service retail outlets with the same value proposition as delivered by the department stores - one stop shop catering to varied consumer needs. For example: Food world.

    • Hyper-mart: It is larger than a super market, sometimes with a warehouse appearance and generally located in quieter parts of the city. These stores offer vast choice at low prices and also include services such as cafeterias. For example: Big Bazaar.

    • Discount stores: These types of stores offer discounts on the retail price by selling high volumes and reaping the economies of scale. The value proposition attached to these types of formats is in the name itself - low prices or at a discount.

    • Convenience stores: Convenience stores are small self-service formats located in crowded urban areas. The value proposition attached to these type of formats is convenient location and extended operating hours.

    • Branded stores: The exclusive showrooms either owned or franchised out by a manufacturer are termed as branded stores. They offer complete range for a given brand with certified product quality. For example: Shoppers' Stop.

    • Speciality stores: This type of store focuses on a specific consumer need and caters to most of the available brands. These types of stores provide greater choice to the consumers and also enable brand comparison. For example: Ikea

    • Shopping malls: An enclosure having different formats of in-store retailers, all under one roof is termed as a shopping mall. This type of a format is gaining importance these days. The benefit of this type of format is that different shops are located close to each other, thus enabling convenience of shopping.

    Non-store: Non-store formats are those forms of retailing where end users are served without meeting them in the physical store. Non-store formats are represented by catalogue and direct mail retailing, telemarketing, television home shopping, direct personal selling, vending machine selling and internet selling. Here, we focus on two such formats namely vending machines and electronic retailing.

    • Vending machines: A vending machine is a retailing format involving the coin or card operated dispensing of goods (such as beverages) and services (such as life insurance sales at airports). It eliminates the use of sales personnel and allows for round the clock sales. Machines can be placed wherever they are most convenient to the consumers i.e. inside or outside a store, at a station, airport or a street corner.

    • Electronic retailing: Electronic retailing (also called e-tailing and Internet retailing) is a retail format in which the retailer and customer communicate which each other through an interactive electronic network. The customer places orders directly through the interactive network or by telephone, after which the goods are then delivered to the customer's address.

    Looking ahead...
    As per our estimates, the retail sector as a whole, grew by 9.7% in FY06 as against the real GDP growth rate of 8.4% and GDP per capita growth of around 7%. But organised retailing grew at more than 3 times real GDP growth in FY06 and we expect this trend to continue in the next three to five years. Going forward, we believe that accretion to income levels of the rising Indian middle class (represented by the financially independent young population) and the consequent rise in disposable incomes will fuel the growth of the retailing sector.



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