Download Branding and its Competitive Advantage in the Consumer

Growth of Retail in India with Pantaloons as
a case study
By,
PARIDHI SARAOGI
2005 – 2006
A Dissertation presented in part consideration for the
degree of
M.A. Marketing
ABSTRACT:
This study was conducted to gather a deep insight into the Indian retail market. The
market for retail in India has had a history of being extremely fragmented, with 97% of it
being formed by the unorganised sector. Organised of modern retail can account for only
about 3% of the Indian retail market. But with favourable changes in the environment, all
eyes are set on an expected boom in the retail industry, with large domestic players
entering the arena and powerful global players looking for a door to enter. Thus a huge
growth in the organised retail sector is expected in the next five years.
The objective of this study is to analyse how the present Indian retail king, Pantaloon
Retail India Ltd (PRIL) should maintain its supremacy in the face of competition. The
company has formed at aim to provide every product that every consumer wants in every
market. Following this dream they propose to fight competition. Research in this study is
aimed at finding out how can the company turn its dream to reality in the face of
competition. Various theories on retail growth were analysed in this respect and used to
carry out the study.
CONTENTS:
Chapter 1:INTRODUCTION………………………………………………..1
Chapter 2: LITERATURE REVIEW………………………………………..6
2.1 RESEARCH OBJECTIVE AND QUESTION……………….33
2.2 METHODOLOGY……………………………………………35
Chapter 3: CASE STUDY
3.1: Review of the Indian retail market……………………….…..37
3.2 Company Review……………………………………………...50
Chapter 4: DISCUSSION…………………………………………………..57
Chapter 5: CONCLUSION…………………………………………………68
References………………………………………………………………… 71
ACKNOWLEDGEMENTS
I would like to thank all those individuals whose inputs and experience helped me write
this dissertation. I would like to express my sincere gratitude to Ms Deborah Robert, my
supervisor, for her guidance and encouragement. Her support was indispensable in
completing this dissertation.
I would then like to express my sincere Gtatitude to Mr and Mrs Kishore Biyani, and Mr
Dipayan Vaishya of Pantaloon Retail to support me in this study. I would also like to
thank the entire staff of Pantaloon for being supportive in my effort.
I would like to thank my parents and my friends for their constant support and
encouragement. It would not have been possible for me to do this work without the
support of my friends Abhishek, Pritha, Aditya, Tania, Neha, and Akshay.
Chapter 1:INTRODUCTION:
In most developed countries, retail is seen as one of the major drivers of economic
growth. The retail structure in these countries comprises mainly of organised or modern
retail. Most markets in the west from the point of view of retail have matured and
saturated. Thus the global powers are turning their eyes towards greener pastured, that is,
markets that are untapped, and offer great potential for growth. Wal-Mart is the world’s
largest retailer. Already the world’s largest employer with over 1million associates, WalMart displaced oil giant Exxon Mobil as the world’s largest company when it posted
$219 billion in sales for fiscal 2001. Wal-Mart has become the most successful retail
brand in the world due its ability to leverage size, market clout, and efficiency to create
market dominance. Wal-Mart heads Fortune magazine list of top 500 companies in the
world. Forbes Annual List of Billionaires has the largest number (45/497) from the retail
business.
The retail sector in India is the second largest employer in the country after the
agriculture sector. Being one of the most attractive emerging markets in the world, India
has become a hot destination for retail forays. It was ranked second in a Global Retail
Development Index of 30 developing countries drawn up by AT Kearney. AT Kearney
has estimated that the retail market will grow at a CAGR of 30% over the next five years.
While the share of organized retail is only about 3% currently, it is expected to grow at
the rate of 25-30% per annum and revenues from the sector may triple from the current
level of US$ 7.7 billion to US$ 24 billion by 2010.
According to a KPMG report, growth in organized retail is expected to be stronger than
GDP growth in the next five years. This is mainly because the modern Indian consumer is
richer, younger and more aspirational than ever before and the nascent organized retail
sector is showing signs of being able to keep up with its customers. Shopping malls,
supermarkets and hypermarkets are springing up in cities all over the country and foreign
brands have never been more popular. With the sector opening up to FDI, new
opportunities have also opened up. It is expected that rapid growth will come about
especially in three key segments - food and grocery, apparel and household improvement.
However, until recently, the citizens of the world’s largest democracy were not free to
choose what they wanted to buy or sell. Production of consumer goods was constrained
by the “License Raj” while other laws and regulations limited the size of manufacturing
units. Investments in new products were discouraged, multi-nationals were kept at bay
and imports were held back by tariffs that often exceeded 200 percent.
In India, the “License Raj” hindered the development of the organised retail. The era of
the 60s was basically an era of shortages. Even basics like milk, kerosene, sugar and
staples were hard to come by. Family owned stores dominated the grocery business and
manufacturers, under Government control, fixed prices. The retail establishments could
not develop any competitive advantage in terms of price, range or service. The stores that
existed were not aspirational in any sense and the only chain stores that existed were Bata
and textile show rooms. They themselves were not big crowd pullers and carried the
perception of providing standard quality at standard prices.
The modern Indian consumer however, is very different from the consumer of the 60s.
The Indian middle class has more disposable income and a greater propensity to
consume. They are better informed than their predecessors and are more value conscious
and health conscious at the same time. The Indian consumers are astute on trade offs
between convenience, discounts, choice and status and buying decisions are now more
complex than ever before. Festivals and seasons are no longer the big buying periods as
the weekends are the modern day festivals and the malls are the temples.
The Indian retail market has undergone a sea of change since the early nineties till the
present time. This highly fragmented retail market, with organized retail in a very nascent
stage had negligible organized retail in the early nineties. There were no large
departmental stores that catered to every need of the consumer. Also, there were no
supermarkets, grocery chains, no foreign brands for clothes, shoes and other everyday
products. There were very few local brands for clothes which also operated through small
retail outlets and did not have large stand alone stores. The Indian consumer was
habituated to buying grocery from small local shops which did not stock every item
required on a usual basis. Clothes were also purchased from the small local retail stores
which kept a few Indian brands. Foreign brands were not available in the organized retail
market. This scenario has changed with the growth of the retail giant Pantaloons
Industries which infused the concept of seamless departmental stores in the country.
Starting with stand alone stores, Pantaloons offered multi brand departmental stores to
the consumers and later also ventured into grocery chain and various other concepts.
Thus, Pantaloons had a major hand in changing the face of retail in India and continues to
do so by exploring newer sectors. From manufacturing of clothes to retail, the company
has also entered the food market, the entertainment sector, the real estate sector, the
capital market and so on. The company is currently occupying the top rung of the retail
ladder in a country like India with a huge untapped retail market. Naturally there are
many other players both domestic and international which are looking at entering the
Indian market. The international chain Walmart, and the Indian industry Reliance are said
to be its keen future competitors. While facing the onslaught of competition, Pantaloons
fosters a dream to enter every market where the consumer consumes, and thus over come
the competition in this way. An Indian business magazine called Business today says that
“Biyani (Managing Director, Pantaloon Retail India Ltd)
Is seeking to build size and scale beyond conventional retail, across the entire consumer
space. This involves forays into an assortment of formats and businesses, right from
mobile phones and storage products to health, beauty and fitness products, from
pharmacies and salons to furniture and furnishings, consumer durables and electronics,
and from gold and jewellery and footwear to the entire gamut of financial products”
(2006).
The reason I have chosen this topic is because of my interest in the retailing sector and
the major change this industry has gone in India in the last few years bringing about a
change in the way people shop. The marketing modules I have studied would help me to
understand the market and the reasons for the development of the departmental stores.
The research would try to highlight the growth of the departmental stores’ concept in
India by focusing on the growth of Pantaloons as a major retail chain all over India.
Chapter 2: LITERATURE REVIEW
This chapter deals with all the concepts and theories relating marketing and retail devised
by experts in various field. Those theories which are important for our study have been
identified, comprehended and analysed and presented in this chapter.
In the primitive world, the prevalent form of retail was the local marketplace where
people sold their wares. In order to communicate the exclusivity of their goods to the
potential buyers, these sellers would keep on announcing the superlative qualities of their
wares throughout the day so as to attract the passing customers. Their voice and
salesmanship were the only marketing techniques these sellers possessed. This form of
selling then gave way to small shops, which was a very unorganised form of retail.
Sellers had their own speciality stores, which were often named after their family name,
and there were no chains of stores as we see today. As and when marketing techniques
became sophisticated, and with the advent of technological breakthroughs in various
spheres, this unorganised form of retail finally metamorphosed into the modern retail
environment that we see today.
Though the retail sector is much developed in the powerful nations of the world, like
America, United Kingdom and other European nations, it is still in an extremely
undeveloped stage in many third world countries like India and Bangladesh. The
importance of the growth of the retail sector in the economy of a nation and the life of its
citizens have been elucidated by Burt and Sparks, who say that ‘with the emergence of
modern techniques of retailing and the rise of large retail companies and new retail forms
and formats, retailing has become much more visible and central to consumers’ and
governments’ concerns’ (Burt and Sparks, 2003, p. 3). They have even gone to the extent
of saying that ‘reflecting as it does cultures and consumer, retailing is the primary conduit
for production and consumption linkages in economies’ (Burt and Sparks, 2003, p. 3).
In the immensely competitive world of modern retail where big retail groups are taking
rapid strides to extend their presence globally, it is indispensable to understand the
concept of retail strategy and why it is important for retail organisations to adopt a
strategic perspective. According to Rosenfeld & Wilson (1990) ‘change is in part, the act
of crystal-ball gazing, looking into the future to predict what will be the context in which
organisations and individuals will exist.’ Many management experts have emphasised
the importance of change in the business environment. Stickland and Stickland (1998) are
of the opinion that ‘Managers are now confronted with a bewildering array of
approaches, techniques and strategies to assist them in changing some aspect of their
business for the better.’
There are many factors that induce change to take place in an organisational scenario. It
is generally seen that the changing nature of the workforce, technological upgradation,
economic shocks, competition, social trends and the world politics are the most common
drivers of change in a company (Robbins, 2001). Hence changes take place on a daily
basis not only in the external environment, but also in the internal environment of the
organisation. The managers need to be aware of how to deal with this complexity, and
more importantly, how to anticipate future changes that are likely to occur. This is the
point where strategic management and strategic planning come into the picture.
Ansoff (1965) defines strategic management by saying that it is concerned with
‘positioning an organisation within its environment and to ensure its continued success’
(Burt and Sparks, 2003, p. 56). Burt and Sparks also state that decisions concerned with
strategic management, that is, strategic decisions, are ‘often not based on detailed
analysis but on extensive personal knowledge and intuition (2003, p. 57). Managers use
their own experience and acute sense of happenings to understand and interpret the
environmental changes and deal with them accordingly, when it comes to such decisions.
Thus, when a retailer sees the emergence of a new fashion conscious teenage consumer
segment, he proposes to tap the new market by establishing a store which caters
particularly to this segment, paying special attention to see that the prices coincide with
their spending power. Such a change can only be anticipated by intuition.
Paul Freathy (2003) described a strategic management model in his book, explaining it to
be consisting of five stages, as shown in the figure below. The relationships shown in the
figure are not ‘linear’ but ‘iterative’. ‘A linear representation would give the impression
that one stage of the process is totally distinct from another. The process should not be
thought of as a sequence of steps followed by managers, but rather stages that may be
moved through and which are likely to be repeated’ (Paul Freathy, 2003, p. 58). In order
to sustain in the competitive retail scenario, the managers must pay attention to this
concept and implement it in their working.
External environment
Mission
statement
Strategic analysis
Internal environment
Maintain portfolio
Corporate objectives
Add to portfolio
Divest from portfolio
Market penetration
Market development
Business objectives
Product development
Increase profitability
Operational objectives
Improve gross margins
Increase market share
Organic growth
Add four new stores
Joint venture
Tactical choices
Merger acquisition
Add four new stores
Franchising
Implementation
Add four new stores
Add four new stores
Monitoring and review
Fig 2.1: THE STRATEGIC MANAGEMENT MODEL
SOURCE: Paul Freathy, “The Retailing Book”, 2003, p.58
The first step to maintain a strong retail present in any country, the retailer must look at
reshaping and controlling supply relations. Robin Murray(1989 : 43) threw light on the
shift of emphasis from ‘the manufacturer’s economies of scale to the retailer’s economies
of scope, that is, the retailers developing innovatory information and supply systems
which allow them to order supplies to coincide with demand, and of the revolution in
retailing demanding and reflecting new principles of production, a new pluralism of
products and a new importance for innovation’ (Wrigley and Lowe, 2002, p. 51). Simply
speaking the onus of all product innovations, development of new products, marketing
communications and dominance of distribution channels is on the retailer and not the
manufacturer, as opposed to the situation which prevailed before the ‘retailing revolution’
in the UK in the 1980’s (Wrigley and Lowe, 2002, p. 52). Wrigley and Lowe also
mentioned that the shift in power could be highlighted by the fact that the retailing
companies are reaping more profits relative to the consumer-goods manufacturers.
To understand this in a clearer manner, the use of Michael Porter’s ‘Five forces’ model
can be made. In his model, he explained that there are five forces that determine industry
attractiveness and long-run industry profitability. These are the threat of entry of new
competitors, the threat of substitutes, the bargaining power of buyers, the bargaining
power of suppliers and the degree of rivalry between existing competitors. Thus each
firm should seek to find a place in this framework in order to ‘best defend itself against
these competitive forces or can influence them in its favour.’ (Porter, 1980, p. 4). The
model is illustrated below.
Fig 2.2 : PORTER’S FIVE FORCE MODEL
Source: http://www.tutor2u.net/business/strategy/porter_five_forces.htm
The Porter’s model can be applied to the retail industry as well. If the retailer is seen as
the buyer of the goods produced by the manufacturer, then going by Wrigley and Lowe’s
statement about the retailing revolution in the 1980’s, the bargaining power of the retailer
increases and the competitive forces within the model shifts in the favour of the retailer.
The strength of the bargaining power of the retailer can be explained by the growth of
large, modern retail firms, which have immense resources, manpower, technology and
influence, as well as direct insights into the consumer buying patterns. The direct
connection with the consumer brings the retailer closer to the consumer giving him a
chance to identify its real needs and wants. As a result of which the retailer also initiates
to produce its own products that are fine-tuned to the inputs received by the consumers
themselves and launches his own brands and labels. This proves to be another
competitive force in the model, that is, ‘entry of new competitors’. Thus we see that two
of the competitive forces in the model shifts in favour of the retailer. The retailer can
strengthen his position in the bargaining process by threatening to discontinue to sell the
manufacturer’s products, by virtue of being a large avenue of selling the manufacturer’s
products. As such, the retailer is able to dictate terms to the manufacturer, extract more
discounts and increase the profitability of the retail organisation.
However, Galbraith (1980, 118) in his thesis, pointed out that, ‘ opportunity to exercise
such power exists only when suppliers are enjoying something that can be taken away,
that is, they are enjoying the fruits of market power from which they can be separated’.
Hence, due to the increase of the bargaining power of retailers, manufacturers aim to
form good cooperative relations with them, so as to induce them to extract large sales
volumes of their products vis-à-vis other rival manufacturers. This is how retailers are
able to maintain their supremacy in the market (Wrigley and Lowe, 2002).
The same model can be applied to the retail sector of a nation from a macro perspective
as well. Let us assume a hypothetical situation where a particular retail organisation is
being assessed for its competitive strength in the market as compared to its competitors.
Its strength to maintain its supreme position in the market full of competitors can be
increased if his bargaining power is higher than its suppliers, that is, the distribution chain
comprising of manufacturers and intermediaries. It can also overcome the threat from
new entrants by producing products under its own label and pricing them cheaper, as the
eradication of numerous middlemen can decrease the cost of procurement of the
products. Again, the threat from buyers, which is the third force in the model, can be
overcome by observing buying patterns and taking care to make the whole purchasing
process for the customers in the store enjoyable for them, so that they become more loyal
to them and less inclined to competitors. In this manner, the retailer can increase sales
and become stronger than its competitors. The retailer aims to become so powerful as to
make its smaller competitors merge with them due to their falling profit curve as
compared to the strength of the former. Such mergers and acquisitions further strengthen
the competitive force of the retail organisation.
According to Stephen Brown (2001), retailing has been portrayed, as ‘a kind of
profiteering, an unwarranted service between consumer and retailer and its practitioners
have been the focus of popular hatred from below and mild scorn and condescension
from above’. This statement reflects the hostility inflicted upon the sphere of retail in its
nascent times. But as opposed to others in the business management arena, marketers
were the only ones who were less hostile than the others and gradually adapted
themselves to the field. As the sphere of retail matured over the years marketing tools and
concepts began to be applied to retail that began to be accepted more widely. In the
words of Brown, ‘as a consequence of revolutionary changes in the organisation
technique and environment of the industry, retailers now rank amongst the largest, most
sophisticated and dominant business organisations in Britain, Europe and beyond (2001).
This assisted in the development of the concept of retail marketing that is ‘adapting a
company’s product and service offer to the perceived needs of a target market segment or
segments’ (Brown, 2001).
Many large retail firms who have adapted themselves to the new marketing-inclined retail
environment have indulged in market program planning. This practice is observed to a
very lesser degree in case of smaller firms. Goetsch(1993) has said in this regard that
‘owners of small businesses often tell me that they do not have time to prepare a
marketing plan’. They regard formalised planning to be a waste of time and resources and
to be of no utility to them. Research in this regard revealed that small firms disregard to
indulge in planning due to lack of support staff. Their lack of human resources do not
allow them the luxury of using them to indulge in long term competitive planning.
Another factor that stands in the way of planning is the high costs involved in the
activity. Theses firms do not enjoy the liberty of indulging in activities of trial and error.
Their limited resources prevent them from making any wrong decision, as they are less
able, as compared to large firms, to sustain the after effects of such errors. (Conant and
White, 1999).
Though experts like Robinson, Logan and Salem (1986), have supported the decisions of
small firms to avoid formal planning and concentrate more on daily operational planning
on the grounds that the latter is more likely to accelerate the degree of performance level
in the firm. I would like to disagree with this statement as the advantages of strategic
marketing planning outnumber its limitations that have already been elucidated above.
While, it is true that such long term planning may cause short term difficulties in the
operations of these firms, it is also true that in order to achieve the goals of growth and
higher sales, these firms should chalk out a formal plan of dealing with competitors and
winning and retaining customers. If the small firm fosters dreams of metamorphosis into
a large firm, planning is the first step it should take so as to turning this dream into
reality.
The significance of marketing program planning and its virtues are reflected in the
definition penned by Pride and Ferrell (1997), who define it as ‘ the systematic process of
assessing market opportunities and resources, determining marketing objectives, defining
marketing strategies and establishing guidelines for implementation and control of the
marketing program’ (p. 532). Conant and White (1999) also voice their opinion in
support of planning by saying that though it finally leads to improved financial
performance, the entire planning process as a whole conjures certain valuable benefits,
which they tagged as ‘process benefits’. They also cited instances of such benefits,
namely, improved marketplace knowledge, identification of new products, more effective
control of the marketing mix, developing a better sense of customer needs and also
discovering new product lines that show high potential.
The amalgamation of the marketing concept in the retail sector has also been supported
by Cohan and Jones (1978). Just as the marketing concept concentrates on targeting the
right market for their product, retailers also target their products to a particular market
segment and tailor their communication and merchandising image to appeal to this
particular target market. ‘In response manufacturers need to differentiate their product
lines accordingly, ensure that their marketing programs are compatible with the new
retailing strategies, and pick key distributors with an eye to the retailer’ market image and
consumer franchise’ (Cohan and Jones, 1978, p. 46).
In order to compete with the brand marketer who is armed with the weapons of
sophisticated marketing techniques, the retailer is left with two options. Firstly, he has to
develop his own brands and labels that are exclusive to attract the consumer and have
more value for the consumer. For this the retailer is free to exercise his power and make
use of foreign sources. Secondly, the retailer has to be careful to project a certain image
to attract a certain section of the market, that is, he has to add a certain value to the
merchandise he is selling. ‘Today’s retailer is selling more than just merchandise and
now has sophisticated tools with which to analyse markets and aim his appeals’ (Cohan
and Jones, 1978).
With the aim of selling a merchandising image to a certain well-selected target market, it
is indispensable for a retailer to carry out ‘Retail Segmentation’. The concept of retail
segmentation was recognised by Walter Salmon of Harvard Business School, many years
ago (Cohan and Jones, 1978).
Cohan and Jones are of the opinion that retail segmentation involves differentiating a
product to the extent to which its purchase and ownership becomes proportional to the
shopper’s self image (1978).
Retail markets can be segmented on the basis of price, that is, images are formed with the
conjunction of both ego as well as price (Cohan and Jones, 1978). For example, a
discount store selling apparel will project an image, which attracts a certain section who
shop for value for money. But an exclusive clothes boutique that sells designer clothes at
high prices caters to the premium section of the society who is ready to pay the exorbitant
price, as the purchase satisfies their ego and yearn for exclusivity. Retailers who sell mass
products offering value for money are successful in selling staple products like kitchen
appliances, as these products are not directly associated with the image of a person.
Fashion-centric products are more flattering to the ego than staple products like groceries.
Cohan and Jones are of the opinion that ‘the number of competitors increases toward the
ego-involved end of the merchandising spectrum, where the opportunities for image
differentiation correspond to the various age, income and taste segments in the
population’ (1978). It also happens that the same customer who shops in the elite clothes
store for apparel shops for groceries in the discount store. Thus the same customer has a
different ego appeal for different category of products.
Mass merchandisers are making use of national advertising as a ‘natural extension of
classic marketing techniques’. But less centralised retail marketing also exhibit the
success of ‘scientific’ market positioning, by conducting extensive market research and
analysis and using marketing techniques to attract and retain target customers. Stores that
‘try to be everything to everybody feel the pinch, on one side by the value merchants who
are pursuing an even greater share of total general merchandise sales, and on the other
hand by style merchants who tickle the ego, and are seeking a bigger share of individual
spending from the affluent, fashion-conscious segment of the population’ (Cohan and
Jones, 1978).
Such broad-based stores that aim to cater to the entire population, have been criticised on
the ground that they do not realise the significance of retail segmentation can be regarded
as a vestige of the past. Even though such stores still exist, they are being driven out of
the market by stores that specialise in trading above and below their segment.
Preddy(1996) in his article illustrated the concept of segmentation on the basis of their
disposition towards promotion. According to him ‘fierce price competition clearly places
pressure on retailers, not only from the perspective of maintaining competitive edge, but
also because consumers are becoming increasingly demanding in their expectations
(Preddy, 1996, p.4). in today’s promotion oriented marketing and retail world, the
customers have become habituated to getting offers like discount coupons, multibuys and
value packs which cause a drain on the profits of the firm. Preddy has patronised the use
of the concept of loyalty cards as a promotional tool. This also provides an underlying
benefit to the firm, by generating a mass of information about the customer. Loyalty
cards help to reveal information relating to demography, purchase behaviour, tastes and
preferences of the customers.
Such customer database is also used as a medium to recognise those shoppers that the
retailer regards as ‘valuable’ and important. The information thus generated not only
reveals the identity of such shoppers, but also gives insights to prepare marketing
packages aimed specifically at these segmented special few. This information helps the
retailer to identify those shoppers who focus on shopping, that is, ‘shopper focus’, from
those who are more concerned with promotional offers while shopping, that is, ‘promo
focus’ (Preddy, 1996).
Throwing light on the area of market communication, it can be said that successful
retailers are no longer dependent on just radio or print advertising, but have adapted to
the genre of television advertising. They now recognise the wide appeal and reach of
television as a medium of advertising in order to execute their dual goals of market
segmentation and image differentiation.
The discussion of the influence of various marketing related elements on the success of
retail activities is incomplete without including the concept of relationship marketing.
“Relationship marketing has been variously referred to as a new paradigm( Gronroos,
1994), an ‘emerging sub- discipline’ (Sheth, 1996) and ‘the new orthodoxy’ (Petrof,
1997) within marketing”(O’Malley & Tynan, 1999). Gummesson is of the opinion that
‘marketing is being seen as relationship management: creating, developing and
maintaining a network in which the firm thrives’ (2002). O Malley, Patterson & Evans
(1997) have given a concrete definition of relationship marketing saying that it ‘involves
the identification, specification, maintenance and (where appropriate) dissolution of longterm relationships with key customers and other parties, through mutual exchange,
fulfilment of promises and adherence to relationship norms in order to satisfy the
objectives and enhance the experience of the parties concerned.
Analysing the different definitions given by marketing experts, I feel that relationship
marketing revolves around adopting an integrative approach, by tying the whole
organisation into a strong bond with the customer, with the aim of increasing the
organisation’s profitability while providing benefits to the customer. This can be realised
by bridging the communication gap between the different departments of the
organisation, thus making the entire organisation adopt a holistic customer-centric mantra
of work. The customer on the other hand is expected to reciprocate by becoming what is
called loyal customers. This symbiotic relationship is the basis of relationship marketing.
Thus by forming long-term relations with the customers the retail organisations can
ensure greater sales volumes and higher profits.
In an era of intense competition every retail firm tries to gain an upper hand over the
other firms involved in the same business. One of the ways of gaining advantage is
customer retention, which can be done with the help of relationship marketing. Barnes
(1994) is of the opinion that ‘corporate profitability has been linked closely with
satisfying existing customers’. The focus for successful marketing is on retaining old
customers, as it is more cost effective than attracting new ones. Customer loyalty is
increasingly seen to be crucial to the success of business organisations, with the growing
realisation that attracting new customers is far more expensive than retaining existing
ones.
Dick and Basu (1994) look at customer loyalty as the strength of the relationship between an
individual’s relative attitude towards an entity (brand, service, store, or vendor) and repeat
patronage. It has been suggested that a way of increasing customer retention is through
secure relationships between buyers and sellers. Leanne H. Y. Too, Anne L. Souchon and
Peter C. Thirkell (2001) in their article related to relationship management and customer
loyalty in a retail scenario have also expressed similar views. I would disagree with Dick
and Basu that customer loyalty should not be seen synonymous to repeat patronage or
repeat buying. Repeat buying is often confused with loyalty. It should be noted that there
are many other factors that may induce a customer to make repeated purchases, such as,
convenience, price and compulsion. But this may not necessarily mean that the
organisation has been successful in winning loyal customers. Though repeat purchase is
concurrent with customer loyalty to an extent, customer loyalty is a deeper concept. In
case of loyalty, the customer forms meaningful relationship with the customer, which is
based on trust and commitment. The difference can be highlighted with an example. A
housewife may make repeat purchase from the supermarket next door on the basis of
convenience of location, but whenever given an opportunity if she makes a trip to a
particular supermarket that she prefers, then the latter event is a demonstration of loyalty.
Though the concept of repeat purchase also assists the short term goals of higher sales for
the retail firm, for long term solid growth, the firm should look at converting repeat
buyers into long-term loyal customers.
A point to be noted in the customer retention theory is that it is not advisable for the
company to retain all customers. ‘Segmentation based on customer relationship
profitability analysis is a prerequisite for customer retention decisions’ (Gronroos, 1994).
Thus in reality, from their point of view, the retail firms should look at carrying out
‘intelligent relationship building and management’ (Gronroos, 1994).
Companies are carrying out relationship marketing in retail markets with the help of
customer databases. Use of sophisticated database management systems allow the sellers
to obtain a deep understanding of their customers, their preferences, thus enabling them
to cater to individual customers in a better fashion. ‘Interactive databases are making
relational marketing a reality for consumer goods’ (Webster & Frederick, 1992). But such
information is often used without the knowledge of the customer and brings up the issue
of intrusion of the customer’s privacy. For the perfect relationship in consumer markets,
it is advisable to make the consumer aware of the budding relationship and make him an
active partner in the same.
In a research conducted by Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell
(2001), the relationship between relationship marketing and customer loyalty in a retail
setting has been emphasised. ‘Customer perceptions of relationship marketing efforts
impact favourably upon the formation of trust and commitment, leading in turn to
increased loyalty’ (Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell, 2001).
Hence from the point of view of customers, how they perceive the relationship marketing
efforts is more important, than how it is implemented in reality. Hence, the retailers
should not take it for granted that only by conducting such activities they will bear the
desired fruits. ‘The catch-cry must become one of being seen (by customers) to engage in
marketing activities that enhance the totality of the customer experience, including the
perceived quality of any relationship that may develop’ (Leanne H. Y. Too, Anne L.
Souchon and Peter C. Thirkell, 2001). Another important insight is that the retailers
should try to ‘emulate a “small store” ethos even by larger retail stores’. (Leanne H. Y.
Too, Anne L. Souchon and Peter C. Thirkell, 2001).
Another implication from the research conducted by Too, Souchon and Thirkell is that
retailers must use and adapt technology in a creative manner in order to increase the
impact of relationship marketing efforts. ‘Even in-store equipment can add “relationship”
value to the overall customer experience, for example, point of sale technology, now
allows easy aggregation of customer information into a central database, even for stores
with multiple branches’ (Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell,
2001). Lastly, the retailer should be able to find techniques in differentiating between
casual shoppers who just make a casual purchase and actual customers who invest time
and effort in the whole exercise. In order to successfully derive the benefits of the
relationship marketing strategy, the retailer should recognise and concentrate on the
latter.
There are many retail firms whose ‘new operations generally are related closely to
present ones in terms of the merchandise lines they carry, the trade areas they serve, or
both. Thus the firm can capture incremental business and also obtain the twin advantages
of further capitalising on its competitive strengths and of reducing the risks and
uncertainties of entering a new business’ (Cort and Dominguez, 1977). In other words,
some retailers, in lieu, of expansion, offer the same merchandise lines with some changes
such as targeting a separate segment. This brings out to the question of cross shopping.
This phenomenon occurs when a single customer patronises multiple types of retail
outlets which carry the same broad lines of merchandise, for instance, furniture, shoes,
women’s clothing. These outlets are operated by a single firm and are aimed to appeal to
various target segments. Experts have viewed cross shopping as a disagreeable event, as
they create new outlets with the aim of increasing its customer base, rather than providing
more alternatives to the already existing customers. But Cort and Dominguez (1977)
extend support to the concept by conducting a study which showed that ‘cross shopping
need not be siphoning. It can produce incremental business for the firm, if two outlets
together satisfy a set of needs that either type could serve singly’.
Thus it can be inferred that cross shopping can be supported when the shopping needs
that it meets do not overlap. For example, in case of apparel, a woman wants to purchase
premium garments for eveningwear, but spend less on clothes to be worn to work. She
shops from a lifestyle oriented and value oriented outlet managed by the same retail
group. In such a case even though cross shopping takes place it is not bad for the
company, as two different needs are being fulfilled.
Cheryl Burke Jarvis (1998) voiced her concern on an important current issue, which had
immense potential to affect the retail industry. Her research concentrated on the ongoing
issue of the rise in the popularity of E commerce and the Internet and how the retail
marketer for his benefit could use this medium as a tool. In her words, ‘as leaders in the
retailing industry wrestle with big picture questions about how to adapt and survive in a
future of electronic commerce and out-of-store shopping, retail managers today are
already creating innovative technological solutions to more traditional retailing
challenges’ (Jarvis, 1998). On analysing the research made on this issue it was observed
that such innovations like the internet and E commerce can be effectively utilised to
enhance common management activities like employee training, inventory management,
delivery systems, market research and customer relationship development.
While using the tool of E shopping in the retail industry, retailers first need to be aware of
who are their customers. It is indispensable to be fluent with the personal characteristics
of the potential online shoppers so as to successfully enhance their shopping experience.
For instance in case of electronic products, the online customers are generally welleducated, well-paid, male individuals where as in case of home-oriented products the
shoppers are generally females who are housewives. It can also be mentioned here that
the retailer should keep in mind that for products like apparel, where the customer
generally prefers to try and feel before purchase, the online shopping experience should
try and eradicate hesitation and suspicion on the part of the shopper to the greatest degree
possible.
Retailers should take care to construct search systems that are quick and do not cause
restlessness and irritation to the online shopper. If the search process is long and tedious,
the shopper loses patience. Retailers should also ensure that the first experience of an
online shopper is satisfactory, or else he will never indulge in the same again. The online
shopping systems can also be used to procure invaluable information from the users in
order to produce merchandise in conjunction with their needs.
The growth of online shopping, though useful for the retailer, also proposes to be a threat
to the profits derived from in-store shopping. Retailers can use the emerging new
technology as a defence against this threat, by using the new technology to improve the
in-store shopping experience. According to Jarvis (1998), ‘technology is enabling
creative conventional retailers to use the growing wealth of individual consumer
information to customise the in-store shopping experience, improve shopping
convenience, provide knowledgeable and personalised service, and enhance the
entertainment value and ambience of their stores’. He also cites examples of such latest
technology, such as, infrared and video tracking systems. Their utility is to ‘monitor
shoppers’ traffic patterns and reset store layouts and displays to maximise outputs’
(Jarvis, 1998). Some grocery stores make use of electronic machines for self billing
which help the customer avoid the hassle of long queues and thus save time.
The ascent of the use of E shopping is a reality with which the retailers have to come to
terms with. Though retailers have to be careful not to let it eradicate their in-store
clientele, but at the same time, if strategically planned instead of viewing it as a foe, they
can use it to their own advantage. In fact in today’s competitive retail scenario all big
retailers are adopting online shopping websites in their basket of offers to their
customers.
Davidson , Bates and Bass (1976) penned the concept of a life cycle of a retail firm
which is said to pass through four stages. ‘During these different stages, firms use
different goals, go through different marketing phases, and even draw on different
resources’ (Fionto and Greenwood, 1976, p. 44). In the first stage there is rapid growth of
the firm, characterised by less competition, rapid sales but low profits owing to high
levels of inventory. The second stage occurs when the firm undergoes accelerated growth
with moderate competition, highest level of profits and incremental sales. With the
increase in the number of competitors, the firm enters the third stage that reflects a
decrease in sales growth and moderate levels of profits. The fourth stage is characterised
by declining sales and eroding profits.
The role of marketing is different in different stages of the life cycle. Tyebjee, Bruno and
Bates (1983) have constructed a framework in this respect. According to them, in case pf
entrepreneurial marketing, the owner conducts all marketing and sales related activities.
Due to the uniqueness of the product, customers demand it even though the location is
not upto the mark. In case of opportunistic marketing, the owner hires some employees,
shifts to a better location and thus increases the prices of its goods and indulges in more
advertising. Responsive marketing occurs when levels of management become more
specialised. In this case prices increase, as the firm becomes more inclined towards
service, and more conveniently located for its customers. In case of the last stage, that is,
diversified marketing, the firms adopts many management levels and fosters a separate
marketing department. The prices decrease slightly to remain competitive and the firm
operates through multiple sites.
An important topic of discussion, which is related to enhancing the strength of a retail
firm, is retail internationalisation. From reading the literature available on this topic, it
can be understood that retail internationalisation is the phenomenon of a retail
organisation spreading its wings over various other markets that lie across the borders of
their own nation. In this context, Kacher referred to various ‘push’ and ‘pull’ motives and
Alexander found lucrative overseas markets with niche opportunities as being the
principal motivating force behind retail internationalisation.
Williams(1992) in his article on retail internationalisation has made a mention of various
causes that instigated the growth of the same. Firstly, he said that retail organisations
were driven by growth related motives, that is, more sales and profits, venturing into
various untapped markets which promised higher growth rates, and when the domestic
markets are not enough to meet growth related goals. Another factor that can be
mentioned here is that the domestic market is characterised by vices such as ‘maturity,
saturation and dominance, increased competition, exhausted or unsuitable diversification
prospects and excessive regulations’ (Williams, 1992, p. 8). Again, the foreign country
may have a retail concept, which is innovative and attractive that motivates the domestic
retailer to venture into newer pastures. It also may happen that a retailer decides to enter
foreign markets to fulfil a subjective need. For instance, the retailer may want to follow
to footsteps of competitors, or may receive an attractive offer from a foreign retail group,
or may want to utilise his surplus resources. Lastly, Williams explained that retailers also
get motivated by sophisticated retail tools and techniques they can imbibe from a foreign
retailer that may help to expand his activities in his domestic market. In some cases,
senior management motivations and economies of scale also influence retailers to
establish themselves in foreign markets.
It is imperative to mention the obstacles that prohibit the expansion of retail organisations
in foreign markets. Salmon and Torjdman emphasised on technical limitations such as the
small size of retail firms, which causes of absence of necessary resources and managerial
support for foreign expansion. Factors can be internal as well such as ‘perceived higher
risks, insufficient resources and previous failures’ (Williams, 1992, p. 9). Williams also
can be related to the wider environment in which the organisation functions such as
hostility in the foreign market, prohibitive restrictions in the economy of the foreign
market towards entry of foreign retailers, high currency fluctuations which may cause the
retailer to lose money and threat of stiff competition from the local players in the foreign
market who are enjoying an established presence in the market.
Analysing the theories of experts it can be seen that retail internationalisation is an
attractive tool for retailers to expand themselves, rewrite their domestic success story in
another unfamiliar market, grow stronger and gain more power in the form of profits,
scale and expertise, and also acquire new techniques and technological innovations of
retailing. But good as it sounds in theory, its implementation is not always so simple. The
firm must make sure to properly research the foreign market before entering, especially
making themselves familiar with the culture and tastes and preference of the consumers.
It does not always happen that their working techniques that have been successful in the
domestic market will make them win over the foreign market as well. Hence while
entering new markets the large retail firms should not underestimate or overestimate the
local players and make full advantage of their strengths and weaknesses.
The retailers can adopt various strategies while going international. Goldman (2001)
described various strategies that a firm could adopt while establishing themselves in an
international market. A firm can adopt a ‘global niche positioning strategy’ that proposes
to establish and maintain a ‘global niche in a global segment through a high level of
standardisation’. An ‘opportunism strategy’ concentrates on studying and adapting
strategies prevalent in the foreign country, in order to reap the benefits provided by
opportunities in the foreign country. He also spoke about a ‘format pioneering
opportunity strategy’, which involves the development of a ‘regional format that is
replicated within a specific part of the world’. A ‘format extension compatible country of
origin strategy’ deals with using an already successful domestic strategy in a foreign
market with minimum changes. On the other hand, a ‘portfolio-based format extension
strategy’ is based on the same concept but instead of using a domestic strategy the firm
utilises a non-domestic format. Lastly, a ‘competitive positioning oriented strategy’
emphasises on the ‘maximisation of the key strengths of the format in light of existing
indigenous competition’ (Goldman, 2001). Hence the retail firm should analyse the new
market and choose the correct strategy while expanding internationally.
Retail internationalisation can take place only when the foreign countries are willing to
allow foreign retailers to enter their market and trigger the growth in the retail sector.
This concept can be applied mainly in underdeveloped countries looking to improve the
growth rates of their economy. Anderson (1971) in his article has elucidated the
importance of economic growth of the underdeveloped nations expressing concern on the
‘wide economic and social disparities existing among the nations of the world’. He also
emphasised how the wealthier nations are also involving themselves in instigating the
economic growth and improving the standard of living of these backward nations.
Anderson says that ‘the growth of GNP can be achieved, assuming actual output is less
than potential output, by short-run increases in aggregate demand relative to aggregate
supply and/or by comparable increases in both aggregate supply and demand’.
If a nation improves its resources it can achieve high levels of aggregate supply but if
there isn’t enough demand to match the supply, then it could conversely result in the
growth of higher levels of unemployment and idle industrial capacity, which worsens the
economic state of the country in question. The growth of modern retail in such countries
can solve this problem to a large extent. ‘ To facilitate developmental planning, we must
be capable of predicting the influence of various investment alternatives, which includes
retailing, on the composition and absolute size of economic activity’ (Anderson, 1971, p.
26). In this regard, foreign retail organisations can assist the growth process by entering
these underdeveloped markets and applying their sophisticated marketing expertise and
financial power.
Anderson also gave as the concept of the ‘ retail pull’, which explains how retail growth
can be achieved in underdeveloped markets through entry of foreign retail investors.
From the point of view of the foreign retail organisation, the immense potential of the
untapped markets in these underdeveloped nations attracts them to make such investment.
Thus they will only participate in such a project being attracted by huge profits and will
not be truly concerned with real growth in the underdeveloped countries. Hence the host
country must be careful to introduce a clause that the foreign retail organisation should
‘gradually purchase by an agreed-upon time schedule, more and more of the goods
needed for its operations from indigenous suppliers’ (Anderson, 1971, p.27). In the
process the foreign retail firm has to work towards the development of the small and
under-resourced indigenous suppliers. This chain of events influences the growth of retail
trade and suppliers of the host country (Anderson, 1971).
For the retail pull theory to be successful, care should be maintained that the retail effort
undertaken is ‘market sensitive’ that is, in tune with the indigenous consumers tastes and
requirements. It this is not done then the whole effort may result in a misguided
investment that will have an adverse effect on the growth aspirations of the country.
On deeper analysis, Anderson’s retail pull theory can be applauded on the ground that it
concentrates on improving the economic growth of underdeveloped nations. Through the
growth of the retail sector of these countries, the theory proposes to improve the quality
of goods by improving the efficiency of suppliers by providing them capital and other
resources. But at the same time it can also be criticised on the viewpoint that the foreign
retailer would in turn control the retail market of the host country. The local retail firms
would be unable to match the resources available to the large foreign retailer and
indigenous retail growth would be hampered. Even if the indigenous government makes
rules to protect the local players, they would always face the threat of the foreign
competitors finding loopholes in the government policy in order to reign supreme in their
market.
2.1 RESEARCH OBJECTIVE AND QUESTION:
The literature review consisted of various theories on retail growth, penned by experts,
who have commented on the retail growth structure of developed countries like UK, USA
and other European nations. The theories presented above concentrated on various
aspects connected to the growth of a retail firm. Strategic decision-making is
indispensable for the retail firm to deal with future changes that may question their
existence in the market. The theory of competitive bargaining power is also cited which
looks at how a retail firm should enhance its bargaining power as compared to the
manufacturers of the products they sell. Micheal porter’s Five force model is also used to
support this theory and also to establish how a retail firm needs to maintain its supreme
position vis-à-vis competitors, buyers, suppliers and substitutes.
The literature review then concentrates on various marketing related aspects of a retail
firm such as marketing program planning, segmentation, using loyalty cards as an
important promotional tool, communication, relationship marketing, increasing customer
loyalty, cross shopping, use of technological innovation and retail internationalisation.
All these topics have been discussed at depth to establish the connection of retail and
marketing.
Lastly, the theory of retail internationalisation has been explained which revolves around
a retail firm’s quest to expand itself on a global level. In this context the concept of retail
pull has also been explained which emphasises on the underdevelopment of the
economies of the third world countries, and how the retailing can be used to overcome
this problem. The retail giants of the developed countries have been motivated to assist
the underdeveloped countries in this regard.
All the concepts and theories presented concentrate on how to help a retail firm grow and
maintain its successful position in the market, whether it is domestic or international.
Most of the research presented in the literature review concentrates on developed
countries. There is lack of empirical academic evidence regarding the growth of retail
firms in underdeveloped countries.
The objective of this dissertation is to research the growth patterns of a retail firm in
India, which is an underdeveloped economy, on the basis of the literature review
presented. For this purpose, Pantaloon Retail India Ltd., which is the most successful
retail organisation in India, at the moment, is used as a case study. The retail group has a
plan: to meet the entire family’s need under one roof.
The specific research question, which this study aims to answer, is:
“ How will Pantaloons make its dream of fulfilling a consumer’s every need turn into
reality in the face of competition?”
2.2 METHODOLOGY:
This study was based only on qualitative research, as the research objective does not
involve any numerical studies. Qualitative research is “any type of research that produces
findings not arrived at by statistical procedures or any other means of quantification. It
can refer to research about persons’ lives, lived experiences, behaviours, emotions and
feelings as well as about organisational functioning, social movements, cultural
phenomena and interactions between nations” (Strauss & Corbin, 1990, p 10).
Qualitative studies lay emphasis on the use of more than one methods, and the data is
collected through case study, personal experience, introspective, life story, interview,
films and videotapes and even from data quantified for other purposes such as census
data.
Only by carrying out one or two main methods the required results cannot be
achieved. ‘ The strength of qualitative research lies in the concurrent use of multiple
tools’ (Hall & Rist, 1999). Hence a good researcher should know how to create an
optimum mix of the ‘three legs’ that is interviewing, observation and document analysis
in the right proportion.
All the three methods have their own strong qualities which when combined
appropriately yield good research results. While focus groups and interviews provide
people with a platform to voice their true inert feelings, anxieties, problems and
dilemmas more accurately than any other research effort, observation ‘allows the
researcher to personally see and verify that a particular behaviour or interchange did or
did not actually happen – independent of the respondent’s perception of that event’ (Hall
& Rist, 1999). As it is not easy to trust the verbal comments of people, it is important to
include written sources of information within the purview of these studies (such as
memos, letters, biographies, annual corporate reports). ‘Document analysis is used to
‘analyse written material into meaningful units, using carefully applied rules’ (Aaker et
al, p 100)’ (Hall & Rist, 1999)
In a qualitative study the researchers attempt to ‘describe and understand how people
make sense of their world’ (Cassel & Symon,1995, p 31), and do not assume the
existence of an objective truth. The qualitative researcher is like a craftsman who uses his
own style, skill, imgination and creativity to shape an otherwise ordinary object into a
piece of art. The data collected by the researcher is read, understood, analysed and
interpreted using his subjectivity.
The important qualitative research techniques used within the ambit of this research study
was mainly interviews, interviews, observation and documentation analysis. The latter
involved secondary data, with some primary data as well obtained directly from the
company. The secondary data was collected from academic journals such as the journal
of retailing, journal of marketing, journal of marketing research, European journal of
marketing and so on. Various company reports such as the HSBC report, Fitch report,
Ernst and Young report, KPMG report were also used to obtain knowledge on the Indian
retail market. The primary data was collected from the company, and through interviews
and observatory techniques
Care was taken to follow all rules of qualitative research, and no intentional bias is
involved in the research.
Chapter 3: CASE STUDY
3.1: Review of the Indian retail market
Retail has played a major role world over in increasing productivity across a wide range
of consumer goods and services .The impact can be best seen in countries like U.S.A.,
U.K., Mexico, Thailand and more recently China. Economies of countries like Singapore,
Malaysia, Hong Kong, Sri Lanka and Dubai are also heavily assisted by the retail sector.
The story is not the same in many underdeveloped countries of which India is a prime
example. A high level of fragmentation characterizes the retailing sector of India. There
are about 12 million retail outlets spread across the country, of which more than 80% are
operated by small family businesses. Such sellers utilize only household labour.
Traditionally, small-store (kirana) retailing has been one of the easiest ways to generate
self-employment, as it requires limited investment in land, capital and labour.
Consequently, India has one of the highest retail densities in the world at 6% (12m retail
shops for about 200m households).
At 271 million, India forms one of the largest consuming bases in the world, comprising
27% of the total population. The Indian retail sector is characterized by a high spending
community below 45 years comprising 81 percent of the population, a young population
with 54% population below 25 years, an increased literacy from 44% in 1965 to 70% in
2003, an increase in working women from 1.3 million in 1961 to 4.8 million in 1998, and
an increase in media penetration to 38-million cable household and 80-million TV
household in 2001.
3.1.1 THE MATOR PLAYERS:
The major players in Indian retail can be divided into two broad categories- third-party
retail service providers (organised and unorganised); and manufacturers undertaking
forward integration to gain access to their end-customers. The different categories have
been well illustrated in the diagram below.
Fig 2: Different categories of retailers
Source :Fitch
The major Indian retail players are shown in the diagram below:
RETAILER
OWNERSHIP
SHOPPERS' STOP
RAHEJA'S
PANTALOON
BIYANI'S
LIFESTYLE
LANDMARK GROUP, DUBAI
WESTSIDE
TATA'S
CENTRAL
PANTALOON (BIYANI'S)
GLOBUS
RAHEJHA
Fig: Top Indian retailers
Shopper’s Stop, one of the pioneers in Indian organised retail, established its first store
in 1991. A part of the C L Raheja Group, whose primary business acumen is in
construction, Shopper’s Stop has created a strong brand image, with an extensive network
of 15 department stores across eight major cities. The company faced stiff operational
pressures during 2000 and 2001 following its rapid expansion, which led to accumulated
losses. However, since then it has come a long way, taking effective corrective action and
has turned around its operations, resulting in profitability from 2002. Shopper’s Stop is
one of the larger players in the department store segment, and has established a strong
national retail brand over the past few years. To enhance its margins, it has focused on
developing private labels, currently estimated to account for around 20% of annual sales.
The rating factors in the strong brand equity enjoyed by the chain in its existing markets,
the demonstrated scalability of its department store format and its professional
management team. The rating also considers the company’s comfortable liquidity
position and low level of debt for its size.
RPG was one of the early starters in the organised retail space. It operates mainly in
hypermarkets (Spencers) and food supermarkets (FoodWorld). It also has a small
presence in health and beauty formats (Health and Glow) and entertainment and music
(MusicWorld). RPG Group is one of India’s largest industrial conglomerates. RPG
Enterprises comprises more than 20 companies spanning seven business sectors, Retail,
IT & Communications, Entertainment, Power & Transmission, Tyres, Life Sciences and
Specialties. It has a turnover of more than USD 1.65 billion. The company opened its first
hypermarket in 2001 in Hyderabad. Following a change in business strategy, the
company changed the name of its hypermarkets to Spencers from Giant Hypermarket.
The hypermarket product mix is 60-40 in favour of grocery with the remainder
comprising higher margin products - garments, toys, footwear and general merchandise.
Currently, the total retail space under these hypermarkets is about 210,000 sq. feet.
The food supermarkets venture, FoodWorld is a 51-49 joint venture between RPG Group
and Dairy Farm. The JV was formed before FDI in retail was disallowed post 1997-1998.
Dairy Farm International Holdings (78% owned by Jardine Matheson) is a leading panAsian retailer. There are about 95 FoodWorld supermarkets operating in south and west
India. FoodWorld supermarkets are built to service a middle class household's monthly
shopping requirements at competitive prices. These supermarkets offer items of daily
household consumption; groceries, processed foods, bakery and vegetables. The company
plans to expand into the south, and further increase penetration in the west. The average
size of a FoodWorld store is about 4000 – 6500 sq. feet. MusicWorld was the outcome of
RPG’s long standing association with music through HMV. Currently, there are over 170
MusicWorld outlets spread over 21 cities and this chain is still growing. Of late, the
company also ventured into travel services. Spencer’s Travel Services Limited is
currently the largest corporate General Sales Agent (GSA) in India servicing world
renowned global airlines like KLM, NW, Cathay Pacific and Sri Lankan Airlines.
Recent press reports suggest the joint venture between RPG and Dairy Farm may be
restructured. According to the reports, about half of the 95 stores will be retained by RPG
and the other half by Dairy Farm. RPG’s new stores will be called Spencers
Supermarkets and will use sales proceeds to expand further. According to press reports,
Dairy Farm is expected to divest 51% to stay within the FDI cap.
3.1.2 THE ORGANISED RETAIL SECTOR:
The Indian retail market comprises of an array of traditional kirana retailers and other
smaller firms, with organized retail forming only 2.5-3% of the total market. In India,
orgainsed or modern retail is still in a very nascent stage of development and comprises
only 2.5 percent of the total market. It lags behind other emerging Asian markets like
Taiwan, Malaysia, Thailand and China to a large extent which have made huge leaps in
terms of retail growth in recent times. This is elucidated in the diagram given below:
Fig : Level of organized retail in emerging markets
Source: HSBC
The success story of these traditional kirana stores for numerous years reveals some
advantages over organised players. They are well established and recognised, have a low
cost structure without any hassles of maintenance and upkeep, are operated by the owner
leading to high level of customer service, do not bear the brunt of high real estate
charges, and have low labour costs.
The poor performance of the organized retail sector is all set to be altered. But the
positive side, which will definitively give a sign of relief for the major retailers, is that
this minimal market share is growing at a healthy rate of 25-30% approximately annually.
This phenomenal growth rate is sustainable due to the change in consumer preference and
the increasing customer centric focus of these major retailers, pampering the customers
with convenience way beyond there expectations by giving them convenience in
shopping, an array of assortment to choose from, coupled with the fact that there is more
disposable income in the hands of the buyers. The organized retail sector proposes to
occupy 8% of the total retail market by the year 2010. Many Indian economists gauge
2010 to be a landmark in the history of Indian retail, due to the expected influx of foreign
retail giants like Walmart, and the emergence of large business organizations in the
Indian retail scene. The present retail scenario has a few players of which Pantaloon retail
India ltd occupies the topmost position.
Such growth is anticipated on the basis of various factors that drive it. A major factor is
increasing urbanization and rising incomes among the young. The country has a large
urban pool that is quickly growing. Real incomes are expected to grow by 5-6% p.a.
resulting in significant improvement in purchasing power Incomes are expected to grow
faster in urban areas. Strong demographic growth is predicted in the main consumer age
brackets.
Another factor is that good quality supply of land is no longer a constraint, since
availability of retail space has historically been a growth constraint for Indian retail.
The biggest motivator of the expected growth will be the development of shopping
malls. In India, acquiring good quality real estate on a stand-alone basis is not easy,
especially in city centres, because of archaic tenancy and taxation laws. Despite this,
more than 225 malls are expected to open over the next three years in more than 50 cities.
They will attractive to both value and lifestyle retailers.
Fig : The growth of mall development in India
Another important driver of growth is that profitable models have emerged across most
product categories. Hypermarkets, food supermarkets and discount retailers are the key
value retail formats in India. Only in the recent years have private sector retailers
recognised the growth potential. Standalone supply models have started to appear while
others have started to open in the malls that are mushrooming all over the country.
Pantaloon is the leading Indian hypermarket operator. It has gained valuable experience
in modern format retailing over the last 10 years and is now the first Indian hypermarket
player to expand aggressively, through its hypermarket named Big Bazaar. The success
of hypermarkets has influenced the growth plans of other retailers like Trent (Star India
Bazaar), RPG Retail (Spencers) and department store players like Lifestyle and
Shoppers’ Stop (Rainbow Retail) who will have their own hypermarket formats in place
by the end of the year. These retailers are moving to tie up real estate over the next three
years and they are also preparing to increase the scale of their systems, technology, staff
and overall operations. In the lifestyle segment, most consumer players recognise the
immense growth potential. It has been anticipated that they will undertake two steps.
Firstly, existing lifestyle retailers (e.g. McDonald’s, Pizza Hut) will expand in the bigger
cities and enter smaller cities by becoming tenants in the new malls. Secondly, new
brands, both domestic and foreign, will enter the market to meet growing consumer
demand.
Again, another factor, which is directly favourable in driving the growth of organised
retail, is that the regulatory environment is becoming more favourable. The Indian
government is recognising the immense potential of this growth in the retail industry, and
is adopting a favourable disposition towards the same. In Mumbai a large supply of
defunct textile mill land is being released for commercial/retail/residential development.
In the capital, Delhi, and adjoining suburbs the government helped to release large tracts
of land for retail development.
Fig : Different stages of growth in organised retail
Source: HSBC
3.1.3: GOVERNMENT REGULATIONS REGARDING FOREIGN DIRECT
INVESTMENT:
Prior to 1997, FDI was allowed in retailing to end-users but all applications were
considered on a case-by-case basis. This motivated Nanz Supermarkets of Germany and
Dairy Farm of Hong Kong to enter food retailing in India in the 1990s, in alliance with
the business groups (Escorts and RPG Retail respectively). Nanz exited the market within
a few years after opening about eight stores in Delhi. RPG’s Food World still has a
sizeable presence with about 94 stores across five states in the south and west. But the
alliance between Dairy Farm and the RPG Retail group has broken.
In the late 1990s, the domestic trading community voiced their opinion against FDI in
retailing, on the ground that it would drive many small retailers out of the market, have
an adverse effect on self-employment opportunities and also result in job losses.
Retailing, with its low capital and infrastructure needs, is one of the easiest businesses to
enter and is an important part of the employment landscape. Due to political lobbying, the
government barred FDI in direct retailing in 1997-98.
The current government regulations prohibit the establishment of any foreign retail firm
to carry out direct retail operations in India. At present, the foreign retailers can enter the
market for consumer retailing only through signing franchise agreements with local
Indian players. For example, Marks & Spencer, McDonald’s, Domino’s, TGIF and
Adidas operate through a franchisee system. However, the rules regarding FDI in
wholesale trading are much more relaxed. This was allowed with the aim of reducing
inefficiencies in the system, introduce “best practices” and encourage employment.
Metro, the German hypermarket chain, entered India in 2003 in the cash and carry
segment amidst protests from local wholesalers and retailers.
In the last three years, extensive growth by domestic modern format retailers has resulted
in a rapid shift of market share in the big urban cities. Keeping this in mind, the argument
used in 1997 to bar foreigners from organised retailing holds less value as small time
retailers are still suffering due to stiff competition from these modern retailers. The smallstore still cannot avoid undergoing lost sales. However, the risk in relaxing FDI rules in
the country, remains that there will be a social/political backlash against foreign retailers.
The domestic modern format retailers also form a set of lobbyists against this matter.
While some want to open the door to foreign retail, most are foster apprehensions about
domestic retailers being “crowded out.” These retailers are still young in the market and
are learning through trial and error, in order to bear the fruits of success. They are still
facing the problems of achieving industry status, struggling with regulatory hurdles and
fighting high transaction costs and weak infrastructure. If major foreign players also enter
the market, their extensive resources and aggressive growth plans will prove to be stiff
competitors for the local players. From a domestic retailer’s point of view, it would be
unfair not to allow the homegrown players time to achieve a critical level of scale before
opening the gates to FDI. This time horizon is expected to be at least two or three years.
However, global retailers have their eyes keenly set the Indian market due to changing
virtues like the supply of quality real estate, rising incomes, changing consumption
patterns and favourable demographics. Wal-Mart has already hiked its sourcing from its
Indian suppliers and press reports suggest that it has plans to outsource more than USD
5bn annually from India. Global apparel retailers (GAP, Tommy Hilfiger, M&S etc) are
expected to raise their level of outsourcing from India now that textile quota restrictions
have been lifted. We believe that on the basis of increased outsourcing from India the
global retailers are trying to establish a favourable position for themselves while in
negotiation with the regulators.
Research shows that the main factor that is making foreign investors keen to enter the
Indian retail market is that that there is sufficient demand in the top 67 cities in India to
absorb more than 900 hypermarkets by the year 2010. There are less than 30 operating
today that gives us a clue of the scale of growth being anticipated. Keeping this potential
in mind, we think all retailers with hypermarket models will be winners in the near to
medium term as long as they scale up at a reasonable speed, if they are able to establish
capable management teams and infuse a good working culture. Growth is not an issue,
managing growth and sustaining profitability is the key challenge for these retailers.
3.1.4: CHALLENGES:
Apart from the problem of stringent rules regarding foreign direct investment in the
country, global retailers who are looking at entering the market face some other
bottlenecks as well. The poor infrastructure of the country poses to be a problem,
providing logistical challenges. The retail market in the country is still in an
underdeveloped stage, and is less appealing to potential employees, who are biased
towards conventionally sought after employment opportunities. As such, there is a
problem of lack of well trained manpower in the sector. Another factor which poses
problems is high taxes and outdated government laws. One aspect that the global retailers
have to be well versed with is that the Indian market is a heterogeneous market, with
varied consumption and purchase patterns across different regions. As opposed to the
global retailers, the domestic players have a better understanding of what works here, and
thus have an upper hand. The global retailers also must comply with the the Indian
consumer’s drive for choice. A spokesman from Pantaloon speaks that “we sell forty –
two different varieties of rice.” The market is also characterised by highly fragmented
pattern of consumption all over the country. This is elucidated in a statement made by the
same spokesman who is of the opinion that “the product offering in two stores, twelve
kilometres away from each other is totally different.”
3.2 Compamy Review
Pantaloon Retail (India) Limited (PRIL) was incorporated on October 12, 1987 as Manz
Wear Private Limited under the management of Mr. Kishore Biyani. It was initially
started with a focus on "Mens-wear Retailing" in the small store format. This was
through franchisee outlets, Pantaloon Shoppes, with an average area under operation of
less than 1000 sq ft.
In late nineties, the company changed its focus to "Family Retailing" in the large
departmental / mega-store format (greater than 5000 sq ft). Thus, the company has
continuously evolved itself to fulfill the shopping aspirations of all the major class of
consumers, in order to gain higher share of their wallet. The company was converted into
a public limited company on September 20, 1991. It changed its name to Pantaloon Retail
(India) Limited on July 7, 1999.
The three members of the Biyani family, Mr. Kishore Biyani, Mr. Gopikishan Biyani and
Mr. Rakesh Biyani comprise the active Board of Directors for the company. Mr. Kishore
Biyani, Managing Director of the company holds a Post Graduate Diploma in Marketing
Management and has over 20 years of experience in manufacturing and marketing of
ready-made garments. Mr. Gopikishan Biyani, Whole time Director with more than 20
years of experience in textile business, looks after the manufacturing operations. Mr.
Rakesh Biyani, a Commerce Graduate is a Whole time Director and manages marketing
and production.
From being a trouser manufacturer in the year 1987, the company has a come a long way
to become the largest retail conglomerate in the country. In an interview with the
Managing Director, it was revealed that according to him the fact that sets his company
apart from the others was based on his take on life, that is, “to think big and execute it, to
try something that nobody has done.” (Biyani, 2006)
Research on the company revealed the main factors which can be enumerated as the
strengths of the company.When we look at any global retailer we find what makes a
retail format unique is their focus on supply-chain and the economies of scale that
they gain due to bulk ordering, storage and distribution. Wal-mart the largest retailer
has managed this so well that they actually call the shots with their retailers and take
delivery only when they need to replenish the stocks, thus saving significant
overheads. Pantaloon in India has employed a very similar strategy, and has always
remained focused on supply chain. Another factor that adds to its strength is the first
mover advantage in favour of the company. Pantaloon was the first Indian organized
retail player to successfully diversify across sectors and emulate its sales model. It
was able to acquire a significant amount of property at cheaper rates and become the
pioneer in a lot of formats, due to which the name Pantaloon has today become
synonymous with organized retail. Due to these reasons it has become a locally
known name and a very successful one at that.
The success of the company can also be credited to its ability to understand the
complex Indian consumer. What stands out about the company is that they have
studied global best practices and only emulated those strategies that they knew would
strike a chord with the Indian audience. They offer heavy discounts in all their
products and now are venturing into newer formats, all this comes from deep
understanding of the needs of the customer that would be very difficult for a multinational or a non-retail player to quickly emulate. An interesting insight gained from
an interview with the Managing Director can be mentioned in this respect. He
revealed that traditionally Indians have a mentality to shop in a crowded atmosphere,
which makes them feel that they are getting value for money. This observation has
been incorporated in the Big Bazaar hypermarket model of Pantaloon, which is
designed to look like a crowded market. This is regarded as the underlying factor
behind the success of this format.
Another factor that drives its success is that Pantaloon has a wide retail presence
across various segments including food, fashion and footwear, home solutions and
consumer electronics, books and music, wellness and beauty, general merchandise,
telecom and IT, E-tailing, leisure and entertainment and financial products and
services. It has a healthy mix of retailing formats that cater to a wide cross-section of
the Indian society. Thus they are slowly capturing the largest share of the customer’s
wallet. The acquisition of experienced human capital from other retail companies we
find that Pantaloon has built a strong talent pool at the top and even for the next tier
of leaders and middle-managers. We find that Pantaloon had employed tools like
Balance Scorecard from early 2000, to ensure that the employees felt they were
treated fairly and given their due with the organization.
As every coin has two sides, research also reveals certain weaknesses of the
company. Pantaloon had entered the market, when there were no players and a lot of
market had to be created by them, requiring significant investments and had to suffer
from a long-term gestation period. The first few malls developed by them completely
stood out in the old Indian retail scenario and consumers took some time to
incorporate the habit of shopping in these stores rather than their traditional shops. As
a result costs took longer to recover that is a problem which later entrants would not
face. Even though the retail format is appreciated and valued by the customers, the
disposable income for the average Indian consumer is limited and he may be buying
goods on a more regular basis as he may not be able to invest the cash in such
transactions. Also the rural kirana stores work on a lot of good-will and credit-model
which would be very difficult for a big bazaar to compete with or match.
It can be mentioned here that another weakness which retards the growth of the firm
is lack of proper infrastructure. We find that even if the efficiencies of scale may be
created by the multiple stores, due to lack of adequate storage facilities in case of
perishable goods and lack of speedy transportation facilities, a lot of the prospective
advantages for a large-store may be lost. It has been researched that Pantaloon has
planned a lot into the future and wants to capture the entire share of the wallet with its
venture into almost any sector where the consumer spends, but it may not understand
all the businesses equally well and once the sector does open up to global players, the
contracts made right now would be severed and this might lean that they cannot grow
at the proposed rate.
In the face of a retail boom in India, as the leading retail firm of the country,
Pantaloon is beset with growth opportunities. When we study the Indian market we
find that the disposable income has been steadily increasing, population is moving
towards urban locations, a younger population is taking control and all these factors
mean that there will be a lot of spending avenues for these people, which Pantaloon
can hope to capture. With the Indian consumer becoming more aware and quality
conscious we find that their craving for brands has increased and they look forward to
being offered the best brands and quality at affordable prices, with its models of lowcost stores and its recent tie-ups with Liberty, Galaxy & Planet Sports, Pantaloons is
in a position to cater to these customers.
When we look at the Chinese retail model, we find that their first steps in retail were
as a sourcing hub for players like Wal-mart and from there these companies setup
shop there and now China is the largest growing retail market and the biggest success
story of transformation from unorganized to organized retail. Similarly India is being
used as a sourcing hub by global retail players and once the FDI restrictions are
removed it could easily explode. When we study the Pantaloon groups recent
strategy, we find that while continuing to grow as a value player through Big Bazaar
and other value models, they are also trying to enter the life-style market with stores
like Central and exclusive home-furnishing stores. These markets have much higher
margins and thus the overall bottom-line could significantly increase if the
organization can successfully transform itself from a value player to a pan-valuechain presence
While there are several visible opportunities, one cannot ignore the threats posed to
the retail firm. There is a major divide that exists between the urban and rural
markets. So the formats and understanding which pantaloon has for urban market
cannot be applied to their rural stores, also a strong sense of regionalism is one of the
key tendencies they will have to fight while trying to develop a pan-Indian presence.
The Global retail majors like Wal-Mart, Metro are all looking forward to enter the
Indian Retail market, with over 1 billion customers and the un-tapped market
potential. Once these players come-in, the models of sourcing will become global for
them and the level of competition will go up significantly, with the nascent players
competing with players who’ve been in the industry for over 50 years. The challenge
exists not only from global players but even local power-houses like Reliance,
Godrej, Tata and RPG entering the retail sector in a big-way. All of these houses have
a lot of surplus funds and resources across industries to give Pantaloon a very hardtime. Also with their diversified businesses they may have a lot more capital to invest
than Pantaloon can manage to generate or borrow. Capital deficiency could then,
severely hinder the growth plans of Pantaloon.
Chapter 4: DISCUSSION
In this section, we will analyse the case study with regard to the literature review that we
have prepared. Presenting a short synopsis of the case study it can be said that the Indian
market is in a very nascent stage in terms of development of modern retail, and is a very
lucrative market both for global as well newly emerging domestic players. Currently, the
nation has few big players in the retail market, of which Pantaloon is the most successful.
In the last decade, this company has recorded phenomenal growth but now, due to sudden
interest in the retail industry in India, its supremacy is being threatened and there seems
to be a question whether it will be able to match its expected growth levels. We will now
relate the growth theories devised by experts in the west to see how they relate to the
context of an underdeveloped country.
Let us begin by analysing the theory of growth stages. According to the theory proposed
by Davidson, Bates and Bass (1976) if a firm is facing moderate number of competitors,
recording high sales and highest level of profitability then it is said to be in the phase of
accelerated growth. In the last couple of years Pantaloon has made its transition from the
rapid growth phase to the accelerated growth phase. Going by the theory, the next phase
is deemed to be the phase of increased competition. The sudden influx of domestic
business houses such as Reliance, Birlas and so on, and the growing interest of large
global players to enter the Indian retail market may force Pantaloon to enter the third
phase and cause a decline in sales and profits. This may inhibit the company’s objective
of increasing its profits to a great degree by the year 2010. The company is already in the
‘diversified marketing’ phase where it has various management levels with a separate
marketing department and operates through multiple sites. From that perspective in order
to fight competition, the firm can only make its management and marketing stronger.
At the junction at which Pantaloon is placed, that is, amidst threat of competition from all
directions, the management has to utilise the tool of strategic management. In order to
maintain its high growth rate and prevent the profits from falling, the management of
Pantaloon must indulge in strategic decision making as endorsed by Burt and Spark
(2003) and make use of the strategic management model derived by Paul Feathy. Already
the retail giant Pantaloon has anticipated some of the change and has planned to launch
its hypermarket model in various small cities in India so as to compete against the
Hypermarket giant Wal-Mart and Tesco which are due to enter India, and also counterattack the plans made by Reliance retail to establish itself across all small cities in the
nest few years.
Wrigley and Lowe’s (2002) theory on the control of supply relations is reflected in the
power of Pantaloon to influence the bargaining power of manufacturers, as compared to
other retailers present in the market today. But in order to face competitors like Reliance
who has presence in various industries including petroleum, chemical, steel, agriculture
and so on, and will procure products at very low prices, Pantaloon must ensure that his
strength vis-à-vis manufacturers increases further.
Let us analyse Micheal Porter’s five force model from the point of view of our case
study. The retail formats in India are just starting to pick up and the retailers yet do not
have enough muscle to call the shots with the suppliers, but slowly as business picks up
and bigger players and wholesalers enter the market, the suppliers will have lesser pull.
With India developing as a global sourcing hub before it became a retail destination the
suppliers already have significant power.
There is a lot of talk of India being the next big retail destination and with a sizeable
untapped population, a lot of opportunities do exist, for potential competitors for
Pantaloon, which are being tapped in by various companies in their own way and we find
that a lot of players would want to enter the market both local and foreign like every
major Indian business house is seriously considering opening up a retail arm of its own.
We have already mentioned these potential entrants in various parts of the study. Out of
these, Reliance and Wal-mart pose most amount of threat to Pantaloon.
The customer in all this talk is really the king as he has access to all the buying options
and can chose to spend his income in the best way he deems impossible. Each retailer is
trying to come up with innovative strategies to give the buyers maximum satisfaction
and to ensure that he gets a grand shopping experience.
India while it has grown in the last few years and the disposable income has also come up
we find that there exist a lot of avenues in which a consumer would like to put his limited
income and all the major formats and competitors are fighting for this share of the pie,
resulting in threat from substitutes.
Analyzing the present rivalry in the industry for Pantaloon, we can say that there exists
a lot of competition from the unorganized sector. Though in the organized sector,
Pantaloon has been successful in surpassing large domestic players like Shopper’s stop
and Westside, and has aced every format it has tried, in order to fulfil its wish of entering
every segment, it has to face specialized players already well-established in new avenues
that Pantaloons is still discovering.
Pantaloon aims to achieve high growth even in the face of competition and capture every
area where a customer spends money. Such a mammoth task will be impossible without
proper Marketing program planning. Conant and White (1999) have supported
planning by saying that though it finally leads to improved financial performance, the
entire planning process as a whole conjures certain valuable benefits, which they tagged
as ‘process benefits’. They also cited instances of such benefits, namely, improved
marketplace knowledge, identification of new products, more effective control of the
marketing mix, developing a better sense of customer needs and also discovering new
product lines that show high potential. Thus this theory of marketing program planning
which has been successfully adopted in developed countries, should also be adopted by
Pantaloon to realise its dream.
Pantaloon’s quest to fulfil every need of the consumer, while fighting competition, can
only be successful if the firm can properly segment what section of the market it is
targeting in every product or service that it is offering. Going by Cohan and White’s
theory, merchandise images have to be formed which has certain ego appeals for the
target customers. Pantaloon has successfully implementation of this concept is evident in
the success of its various formats like Big Bazaar, Food Bazaar. Taking the former as
example, the market segmented for this format was the lower class, and the lower middle
class who were extremely price sensitive. The marketing effort carried out for Big Bazaar
was aimed at their target audience by highlighting the fact that they ‘sell their
merchandise at the cheapest prices possible’. The in-store shopping experience of Big
Bazaar is similar to a local Indian marketplace, which has a crowded atmosphere. This is
done because the retail firm realised that this particular segment in the Indian market
prefers to shop in a cluttered environment. As such the merchandise is not arranged in
clean aisles but in small islands. The success of this Indian hypermarket model was based
on successful segmentation and appropriate communication to the target segment on the
part of Pantaloon. If such practices in all the avenues which it is entering, then the same
success story can be replicated.
It is making use of customer information derived from tools like loyalty cards, in order to
gather insights about purchase behaviour and patterns. It can be said without doubt, that
in the retail industry in India, Pantaloon is the king of reading the purchase patterns of
consumers and delivering just what the consumer wants and how it wants. As the
company has already mastered this science, it will not face that much difficulty in
entering new consumer markets. In this area, the organisation also has an edge over the
new entrants who still have a lot to learn about the Indian retail market.
When it comes to relationship marketing and customer loyalty, Pantaloon has been
successful in winning loyal customers in their target segment. By using various
promotional and communication tools the company has established a loyal customer
database in every format that it has undertaken. It will be a difficult task for the new
competitors to come and attract these customers in their direction. If the company
continues to win customers’ loyalty in new avenues as well then it can achieve
phenomenal levels of growth. Its relationship marketing strategies have been so
successful that the name ‘Pantaloon’ now evokes a feeling of trust and commitment in the
minds of even the most suspicious of customers.
Leanne H. Y. Too, Anne L. Souchon and Peter C. Thirkell’s (2001) observation
regarding relationship marketing may be mentioned here. Going by their concept, rather
than the actual implementation, what the customers perceive of the relationship
marketing effort is more important. ‘The catch-cry must become one of being seen (by
customers) to engage in marketing activities that enhance the totality of the customer
experience, including the perceived quality of any relationship that may develop’ (Leanne
H. Y. Too, Anne L. Souchon and Peter C. Thirkell, 2001). This policy is evident in the
Big Bazaar format where the retailer’s quest to provide the customers with good value
products at the lowest price possible is well highlighted and instilled in the minds of the
consumers. Another insight is that the retailers should try to create the aura of small
shops in their large stores. Pantaloon has successfully carried this out in its departmental
store format called Central. Pantaloon should also make use of new technology to gather
more accurate customer information and make the in store environment even better to
suit the target market, while entering new avenues.
As suggested by Cort and Dominguez (1977) in the literature review, if pantaloon
continues to expand across many consumer markets it can encounter the problem of cross
shopping. But by applying correct marketing techniques, and by ensuring that the correct
format attracts the correct target market, the firm can convert the effect of cross shopping
as an amplier in its growth strategy.
Cheryl Burke Jarvis (1998) conducted research on the ongoing issue of the rise in the
popularity of E commerce and the Internet and how the retail marketer for his benefit
could use this medium as a tool. On analysing the research made on this issue it was
observed that such innovations like the internet and E commerce can be effectively
utilised to enhance common management activities like employee training, inventory
management, delivery systems, market research and customer relationship development,
in the western nations. The popularity of internet is prevalent in the Indian subcontinent
as well. Though online shopping is still not that common and trusted by the ever
suspicious Indian consumers, it is an area which is holding the attention of retailers
across the country. Pantaloons, has also not lagged behind in this respect and has
included E-tailing or online retailing in its agenda for future expansion and realisation of
its dream. In order to successfully implement this strategy the firm first needs to be aware
of who are their customers. It is indispensable to be fluent with the personal
characteristics of the potential online shoppers so as to successfully enhance their
shopping experience. Care should be taken to construct search systems that are quick and
do not cause restlessness and irritation to the online shopper. If the search process is long
and tedious, the shopper loses patience. It should be ensured that the first experience of
an online shopper is satisfactory, or else he will never indulge in the same again. The
online shopping systems can also be used to procure invaluable information from the
users in order to produce merchandise in conjunction with their needs.
But at the same time it should be ensured that the firm does not lose its customers to the
lure of E shopping. Thus care to be taken to enhance the in-store experience. Pantaloon
Stores are managed by professionals and state-of-the-art technology is used to run the
operations across the country. Baan ERP Systems and Category Management are all
functional and the entire operations are on line with the head office located at Mumbai.
In case of Pantaloon, it has come up with some sort of implementation of category
management principle. Pantaloon has four categories - Men's formal, Men's casual, Men's
Knitwear & Ladies & Kids wear. Each category manager operates like a CEO of his
category and is given a quantum of showroom space, and his objective is to maximize
contribution after meeting the variable cost and fixed cost (including rental cost) for the
space under his management, category manager with the help of 6 to 7 executives pores
over the sales data of each of the stores and tries to figure out the trend of sales. On the
basis of this extensive analysis, he draws out the plan of procurement and negotiates with
various brands (Say, color plus, Levi's, Lee, etc.) as to how much space and at how much
cost such rental shelf space is available to them.
Fig: The process of Category Management
Source: Company
Pantaloons has always patronised the use of design management in all spheres of its
activities, be it product design, branding, communication, retail space and so on. Using
design, all the spheres of the supply chain can be integrated and the entire process can be
enhanced.
Let us now concentrate on the discussion of retail internationalisation in the context of
our research. Retail internationalisation is the phenomenon of a retail organisation
spreading its wings over various other markets that lie across the borders of their own
nation. Growth related motives, that is, more sales and profits, venturing into various
untapped markets which promised higher growth rates, and when the domestic markets
are not enough to meet growth related goals are cited to be some of the causes that
motivate retail internationalisation. In an interview with the Managing Director it was
revealed that the Pantaloon group do not foster any dreams of expand on a global level as
none of the business formats developed by them will be successful in a matured
economy. Since they have mastered the difficult task of understanding the Indian
consumers, in spite of their heterogeneity they intend to reign supreme in this country.
By trying to capture the maximum amount of the consumer’s wallet the retail firm aims
to counter attack those firms which are expanding internationally from western countries.
The largest retail firm in India is facing the global competitors by either entering into a
joint venture with them and turning them into allies, for instance, Marks and Spencer,
Body shop, Guess jeans, Etam, Starbucks. The retail group is adding foreign brands to its
kitty on a daily basis. Williams’ (1992) theory can be mentioned in this respect.
While we are on the topic of retail internationalisation, Salmon and Torjdman’s
limitations cited by Williams (1992) may be taken into consideration. He pointed out that
hostility in the foreign market, prohibitive restrictions in the economy of the foreign
market towards entry of foreign retailers may inhibit a firm from expanding
internationally. This is being seen in the case of international firms who are eagerly
waiting to enter India. The international firms must make sure to properly research the
Indian market before entering, especially making themselves familiar with the culture and
tastes and preference of the consumers. Due to the heterogeneity of the consumers, they
may have to revise their working techniques that they had been successfully
implementing across nations.
While discussing the interest of global players in the emerging Indian market, we must
mention Anderson’s article on ‘retail pull’. He elucidated the importance of economic
growth of the underdeveloped nations expressing concern on the ‘wide economic and
social disparities existing among the nations of the world’. The growth of the retail sector
in these underdeveloped countries with the help of large successful foreign retailers was
what the medicine he prescribed to cure the developing nations. This concept explains
how retail growth can be achieved in underdeveloped markets through entry of foreign
retail investors. From the point of view of the foreign retail organisation, the immense
potential of the untapped markets in these underdeveloped nations attracts them to make
such investment. The retail expert cautioned the indigenous countries to protect their
economy by making the foreign retailer instigate growth in the economy through linkage
effects. The same is taking place in Indian retail industry today. The foreign retails are
eager to establish themselves promising to improve the Indian economy but domestic
retailers like Pantaloon are suspicious of their motives and are asking the government not
to relax the rules relating to foreign direct investment in the country.
Chapter 5: CONCLUSION
The conclusion of the study is that we were successfully able to analyse different models
related to the growth of a retail firm. Studying and analysing these models gave us a
proper insight into how the retail firms’ growth strategy function. These models and
concepts have also provided a clear picture of the role of marketing in the sphere of retail.
It is clear from these studies that marketing is an indispensable part of retail. In order to
successfully conduct retail, one has to imbibe marketing elements in the growth plan such
as segmentation, communication, relationship marketing, customer loyalty and so on.
These concepts have been discussed at length and properly comprehended in this study.
The next part of the study presents the Indian retailing scenario, describing its major
players, reasons for its underdevelopment, and factors that are driving its growth now.
The study then contains a look at the growth of pantaloon retail over the years and a
summary of its strengths, weaknesses, opportunities and threats.
Finally, the academic research is linked with the case study presented in order to find
answers to the research question. The discussion revealed that most of the theories and
concepts penned by academic experts in western countries hold true for the Indian
example as well. In fact, the growth pattern of pantaloon over the years has matched
many of these theories. The researched shed light on what strategies should the retail
conglomerate adopt in order to realise its dream of :
‘Providing Everything, Everywhere, Every time to every Indian customer in the most
profitable manner’ (source: company).
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