Page 85 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes
Table 4.3

Rivalry among Limited number of competing firms in organized retail
competitors
Similar size of players
High growth rate
Threat of entrants International players looking to foray India
FDI policy not favorable for international players
Domestic conglomerates looking to start retail chains
Bargaining power of Large number of suppliers
suppliers
Product differentiation is not high
Suppliers like Godrej and HLL are willing to integrate forward.
Bargaining Propensity to pay is low. Consumers are price sensitive.
Power of buyers Rising income level enables large number of buyer.
Threat of substitutes Unorganized retail.

Threat of New Entrants

One trend that started over a decade before has been a decreasing number of independent
retailers. While the barriers to start up a new store are not impossible to overcome, the ability
to establish favourable supply contracts, leases and be competitive is becoming virtually
impossible. There vertical structure and centralized buying gives chain stores a competitive
advantage over independent retailers. 95% of the market is made up of small, uncomputerised
family run stores. Now there are finally signs that the Indian government dropping its traditional
protectionist stance and opening up its retail market to greater overseas investment. It has
already allowed 51% ownership in single-brand goods leading to entry of McDonalds, Marks &
Spencer, Body Shop and Ikea and with proposal of raising the ownership to 100% will attract
more foreign retailers. Also with allowing investment by foreign retailers in multi-brand
retailing in a phased manner will lead to more inflow of foreign investors in Indian retail sector.
On the whole threat from new entrants in retail industry is high.

Power of Suppliers
Historically, retailers have tried to exploit relationships with supplier. A great example was in
the 1970s, when Sears sought to dominate the household appliance market. Sears set very high
standards for quality; suppliers that did not meet these standards were dropped from the Sears
line. This could also be seen in case of Walmart that places strict control on its suppliers. A
contract with a big retailer like Walmart can make or break a small supplier. In retail industry
suppliers tend to have very little power.

Power of Buyers

Individually, consumers have very little bargaining power with retail stores. It is very difficult
to bargain with the clerk at Big Bazaar for better price on grapes. But as a whole if customers
demand high-quality products at bargain prices, it helps keep retailers honest. Taking this from
Porter‘s side of the coin we can say customers have comparatively high bargaining power in
unorganized sector than in organized sector. As the customer will demand products from
organized units he will be more focused towards quality aspect.

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