India's Retailing Day!

26^th January, our Republic Day may also be identified in due course as ‘The Retailing Day” as it is celebrated every year for freedom from full prices. The Future Group started it all submitting itself to the absolute power of consumption by the common man in India. I remember when the heavy price-off sales was first organized only for a day – on the Republic Day – the Big Bazaar stores almost had ‘stampedes’ within their premises. It was in January 26, 2006 the big sale was organized in Future Group’s Big Bazaar and Food Bazaar outlets and the group launched its home electronics, appliances and furniture as well on that day. Crowds of customers poured in every store and became unmanageable. The store shutters in many stores had to be pulled down often to prevent overcrowding in the shop floors to manage the throngs of people already bursting at the seams within the stores. Future group decided from the following year to continue the event spread over a few days so that customers may have an opportunity to shop in peace! History repeats itself every year, with respect to the notching up of sales through heavy price offs and discounts on the Republic Day while taking precautions to manage crowds well, not allowing any near stampedes to happen, though. It has not taken much time for competitors like Reliance Mart/Reliance Super, Star Bazaar, etc. to catch up with the event hurling their price challenges and with many other retailers too following suit, the day has almost become India’s Retailing Day!

In retail stores clearance sales are organized as a routine effort to clear merchandise for obvious reasons: to clear saleable quality accidents, shop soiled merchandise, shelf warmers, broken assortments, obsolescent styles, etc. by marking prices down. The perils of holding on to such stocks are the consequent loss of margins and the loss of opportunity to stock new items. The holding of stocks that don’t sell fast results in incurring huge interest costs that cause loss of margins. To the customers, it is tiring to see obsolescent styles and old stocks on the shelves and purchasing becomes increasingly difficult. New merchandise can come into the store only if stores make room in the stock plan for new stocks. This is because retail stores would work with a specific base stock plan that ensures the achievement of the necessary stock turns for the store and it is good stock turns that generate good gross margin returns on inventory! In many professionally run retail organizations, the process of effective markdowns itself is planned during the store’s stage of merchandise planning for the season. In reality, as the close of the season approaches, the process of scaling down the margin in merchandise pricing takes place with the percentage of markdowns becoming higher and higher and this is a silent markdown until it is pronounced during the ‘sale’. If the volume of such merchandise to be marked down is more, ‘normalization’ for the next year takes place by this learning, which is the process of looking at history and ironing out ‘creases’ for better planning. The overall margin mix for the store’s planned merchandise gets thrown out of gear if the markdowns are higher. Necessary course corrections are done at the category, subcategory and the SKU levels responsible for such huge markdowns to make every store profitable.

Retailing has evolved more and so have our customer expectations too. They want more and more for less and less. The concept of Sales has undergone a thorough transformation. It has become a gimmick to bring more footfalls and notch up sales by leaps and bounds in a short while. Merchandise is ordered in large quantities for the sale from suppliers and retailers co-create discount sales tying up deals with their vendors and suppliers. The whole perspective and attitude towards ‘sale’ have changed not just with our retailers but with customers as well. They are more than happy to wait for such periods when ‘sale’ is announced to make their big purchases.

We have only two selling seasons now – The festival season beginning September going through the middle of January and the Indian summer vacation coinciding with a few auspicious months that constitute the wedding season. So it is only just and fair that we have huge sales organized sometime in the rest of the months for preparatory reasons or for clearing remnants or for the purpose of showing a huge top-line in the balance sheet before the financial year comes to an end! We have now covered only one season of sales. Come August, we may have a huge ‘Independence Day Sale’ also. Watch out and it may just mean freedom from full price for our customers in India!

- Dr. Gibson G. Vedamani

Where is RETAIL in the SME sector in India?

In India the Small and Medium Enterprises (SME), also known as “Town and Village Enterprises” in the manufacturing and service sectors have been considered to be quite significant in their contribution to the GDP growth of the country. The Micro Small and Medium Enterprises Development Act (MSMED Act) was enacted in India in 2006 and it facilitates the promotion of SMEs in India. The act embraces any commercial activity permissible under law i.e. any type of manufacturing, processing or industrial activity or trading or allied operations to fall under the SME category. Besides manufacturing, a plethora of service activities like Medical /Legal transcription activities, Call Centers, Event Development and Animation, Video, Filmmaking, Marketing Consultancy, Equipment Rental and Leasing. Laundry, X-rays/Pathology, Tailoring, Studios, Cable TV Network, etc. get due benefits consequent to the categorization as SME in India. For a common understanding of the enterprises, the following classification parameters are provided in the act to differentiate and define each category of enterprise:

Enterprise	Manufacturing	Services
Micro Enterprise	Not to Exceed Rs. 25 Lakhs.	Not to Exceed Rs. 10 Lakhs.
Small Enterprise	More than Rs.25 lakhs but does not exceed Rs. 5 Crores.	More than Rs.10 lakhs but does not exceed Rs. 2 Crores.
Medium Enterprise	More than Rs.5 Crore Rupees but does not exceed Rs. 10 Crore.	More than Rs. 2 Crore but does not exceed Rs. 5 Crores.

Banks offer assistance to the growth of SMEs in India. Further banks came up with specific policies to fund and facilitate SME through single window dispensation, quick decision with least turnaround time through specially constituted MSME Cells, and above all banks prioritized cluster based schemes for funding SMEs with better service.

When it comes to the retail sector, it is yet traditional and micro and small retailers are not even included in the act. Many units involved in the manufacturing of private labels that help retailers are included though. The SME sector in retail is not even taken cognizance of by anyone yet for facilitating its growth. Often we have spoken in seminars and conferences about supporting the growth of traditional retailing in India and about trying our best to modernize traditional retailing in India. We have not done anything yet.

We have many recognition awards given away by seminar and conference organizers in India like Images Retail Awards, ET Retail Awards, etc., and such awards are given repeatedly to just a few retailers to encourage them in the large, organized retail sector of the country. Progressive and growing retailers are there in the SME sector in India in multitudes and if we can categorize them for attaining recognition under the act literally, there will be no limit to their exponential growth in a modernized manner! And recognizing them by acknowledging their achievements will go a long way to motivate them further.

- Dr. Gibson G. Vedamani

The Sourcing Clause - Where there is a will, there is a way!

The Department of Industrial Policy and Promotion (DIPP) notified a few days ago the reviewed FDI policy allowing up to 100% in single brand retailing. There is a condition though. The policy is through the government approval route and not through the automatic route as in the case of cash and carry. The foreign investor ought to be the owner of the brand and the brand should be sold internationally. Now the catch is here. The policy states, “In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian ‘small industries / village and cottage industries, artisans and craftsmen’. 'Small industries' would be defined as industries, which have a total investment in plant & machinery not exceeding US $ 1 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. The compliance of this condition will be ensured through self-certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain.”

Often we think of procurement as sourcing the whole merchandise and one may wonder how big brands will manage to procure to the extent of 30% from small industries when they operate as a single brand in India – especially when it comes to complying with the DIPP's clear definition of ‘small industries’ detailed by dint of its specified value of investment in plant and machinery! The question in many minds may center around the thought of how lifestyle garment retailers are going to fulfill the mandatory sourcing of 30% from small industries, artisans and craftsmen. Job work procurement and sourcing could be an easy solution to many single brand retailers intending to invest 100% in India. The services of established small industry artisans and skilled craftsmen could be availed to get the embellishments done, or get the trims finished, to think of an instance. The other form of outsourcing from such small industries could be the ironing and folding tasks in garments. A plethora of small activities in the manufacturing process could be sourced from small artisans and craftsmen. For, where there is a will, there is a way!

After this announcement, the DIPP secretary was quoted as saying that he will pay heed to concerns if any, when expressed by brands if they face any issue with the mandatory procurement of 30% merchandise from the small industries within the country. The Government of India has a large heart for retailing in India. Mandatory conditions may not be seen as hurdles by a few progressive retailers. It is also worthwhile to note that many existing joint ventures and franchise arrangements to retail foreign brands in India have expressed that they would continue to work with the same arrangements with their partners despite this revised FDI notification. Let’s wait and see how many new proposals are going to be received this year by the DIPP!

- Dr. Gibson G. Vedamani

Furedy's Findings...

Christian Furedy, a retail researcher in the early seventies studied the evolution of organized retailing in Calcutta (now Kolkata) in the nineteenth century. Her study shows very interesting findings. Over all the cities of India, Kolkata scored high in the pace of evolution of modern retailing. The city had a more diversified retail structure than any of the other colonial cities. Kolkata had ore than five to six popular stores in any line of business whereas Mumbai had only two or three and Chennai had even a more elementary retail structure! Similarly in terms of the retail store segments, she says that they were classified into four major groups: the European retail trade owned and operated by the Europeans, Indian-owned retail stores, the bazaar sector of the city's markets and small-scale retail trade Furedy observes, “The Calcutta retail shops were the "trend setters" for modern retailers throughout the subcontinent. The British-owned retail partnership companies held sway over a clientele located in a wide hinterland.” She goes on to say that the line between the elite retail firms and the bazaar shops was quite distinct inasmuch as the elite retail firms were almost only European and the Calcutta Trades Association admitted no Indian firms for long and the leading Indian retailers then were a part of the Bengal Chamber of Commerce.

While studying the trends of people involved in the retail business, Furedy says that there were only a few Europeans in retailing in Indian cities in the 18th and early 19th centuries and so Indian shopkeepers readily took to supplying the needs of the growing European population. She has observed that Parsis became retailers in numbers in Western India whereas in Calcutta there was no single community dominating the early native-run 'Europe' shops. Furedy says, “Instead a miscellany of Hindus and Muslims operated on the fringes of the formal sector. They probably learnt the skills of catering to Western tastes and needs from an intermediate group of shop-keepers which included Portuguese, Greeks, Armenians and some working class Europeans.” This indeed speaks of our capability to acquire retailing skills fast.

Furedy’s research evidences the factors of transportation and development of communication in the colonial times in India to impact the evolution of modern retailing then. She says that the retail evolutionary changes were dependent upon the development of transporta¬tion and communications in India. With the establishment of the railway lines, retail concessionaires at the stations were established. Mail orders were facilitated by railway transportation. She observes that in 1855 there were 169 miles of railway in India and by 1920, there were 35,199 miles and that every extra mile was important to retailers, many of whom filled more mail orders than "in-person" ones. Her research shows vividly that retailers often lobbied for the extensions of lines and better organization of the railway systems. Along with the development of the railways the spread of the postal system and its wide network was being established in India. Furedy says that the concurrent development of postal services, particularly the parcel post and Value Payable Post (VPP) which was introduced in 1877 impacted the retail trade a great deal. The importance of the VPP to retailers was stressed in the Annual Reports of the Indian Post Office. Improvements in telegraphic communication, she records, benefited retailers. This research shows that as Bombay was linked to London by submarine cable via Suez in 1870, the use of the telegraph for individual commercial transactions became feasible and after 1900, reductions in rates further boosted commercial use. Improved communications, including better and faster postal services, and increased newspaper circulation made possible relevant advertising by print. The Calcutta textile and cloth shops were then known by their distinctively illustrated catalogues that carried careful instructions for self-measurement and custom ordering.

Mail order retailing in the USA emerged in the 1900s and became popular as consumers in the United States grew in their concern about time for shopping consequent on the increased number of workingwomen and working parents. The growth of the railway system and expansion of the US post office supported the mail order delivery system. The growth of telecommunications, courier service, aviation and other infrastructure support services may have a direct relationship in impacting the evolution of many unconventional forms of retailing in India. While analyzing the deterrents to retail growth, Furedy’s research shows that the lack of government policies to govern elite retailing hampered its further growth in the pre-independence era.

In the next phase of retail revolution as we are again in the cusp of retail evolution and transformation and as transportation and communication further improve, will e-commerce be the next generation calling for retailing in India? Will our Government of India come up with the right policies to promote organized retailing?

- Dr. Gibson G. Vedamani