Retail Chronicles October Edition

Retail

Chronicles

Monthly Newsletter | Volume 4 | Issue 4 | October 2019

CONTENTS

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INFORMATION TECHNOLOGY IN INDIA Technology is a word that describes something that doesn’t work yet

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Sagar Anam | Onkar Joshi Abhishek Wakode | Parth Reshamiya | Urvashi Dhabalia | Bharat Gupta

EFFECT OF BANKS IN THE RETAIL SECTOR In this article learn about how a slumping demand affects the retail sector in a step by step manner.

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CONTENT TEAM

IMPACT OF FMCG ON INDIAN ECONOMY

DESIGN TEAM Surabhi Upadhyay | Sachin Gosh Archish Raval | Ayush Shah | Pushpak Holani | Ayush Goyal | Shriya Mahajan

The retail sector is one of the most important sectors when it comes to influencing the Indian economy.

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APPAREL INDUSTRY: INDIA Fashion is part of the daily air and it changes all the time, with all the events.

EDITING TEAM Ayush Gupta Abhishek Wakode

The theme of this edition of Chronicles is "The Impact of Retail on Economy". Starting from a daily use thing like bathing soap to merchandise like vehicles, everything is easily available to you at your doorstep because of a mediator called retailers.

Retailers are the bridge between the manufacturer and the consumer and that is the reason they play an important role in the economy. The organized retail market in India is growing at 35 percent annually and the unorganized retail market is growing at 6 percent. Having such a huge impact on the economy, We at retail lab presents you specialized chronicle on the effects of various sectors on retail. Each article is full of insights and analysis. We hope you will surely enjoy this.

“Technology is a word that describes something that doesn’t work yet”

INFORMATION TECHNOLOGY IN INDIA Yash Jain | PGDM RM

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INFORMATION TECHNOLOGY SECTOR IN INDIA Information Technology is the utilization of hardware, services, and infrastructure to create, store, exchange and leverage information to various prospects. IT industry’s main work is to produce, store and disseminate information across industries.

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It has four principal components: IT services IT Enabled Services e.g. BPO Software Products Hardware.

IT evolution in India

IT Services industry was established in Mumbai in 1967 when the Tata Consultancy Services (TCS) got its first US client - Burroughs Corporation, United States. The sector has achieved incredible heights since October, 2019

globalization) in 1991. Due to the liberalization, a flow of foreign investments came in India. Many MNCs were targeting Indian market and talent pool for their growth. In 2005, Special Economic Zone (SEZ) Act was passed which helps companies to take special tax exemption and rebate. The policy allowed companies to have 100% ownership while remove glitches and hindrances in doing business in India.

Current Scenario India has become the ‘IT hub of the World’ with the presence of around 75 percent of global digital talent in this domain. The country has around 12 lakh companies in this sector with around 4 million people employed with market size of US$ 181 billion in 2018-19. The sector is growing at a pace of around 1214%.

Contribution of this sector to GDP increased from 1.2% in 1998 to 7.7% in 2017 because of Foreign Direct Investment (FDI) inflows worth US$ 37.23 billion between 1998 and 2019. Wide talent pool global quality standard, low cost, federal support, and digital infrastructure become the major reasons for FDI growth.

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Problems

The IT industries face various issues at domestic as well as the international level. Some of them are listed below1) Policy Change Various policies adopted by the client countries to give a boost to growth of their domestic companies create problems for the IT organizations as Major chunk of their revenue arrives from these countries. Example – H1-B visa policy of USA changed recently 2) Economic slowdown- IT sector is currently hit by the domestic as well as international (western countries) economic slowdown which can reduce the growth, create layoff situation while reducing the revenues of sector overall.

Recomendations

The competitive advantage should arise from producing more advanced products and services efficiently rather than producing it at a cheap cost. Problembased learning, which is an innovative approach to learning via problemsolving, can be looked upon as a way which can improve the practical knowledge of the engineers. The focus of the country is to encourage more graduates to pursue specializations rather than producing generalists so that they can excel in a particular domain which helps them to comply with the global level of standards.

3) Lack of skilled personnel- India provides low-cost labour for IT organizations but the skillset that labour possess is not satisfactory. Every year, 4,00,000 new students hold graduate degree in India but only 20% of them have the required skill to qualify for the jobs. McKinsey & Company released a report which claims that nearly half of the IT services workforce will be rendered "irrelevant" in the next 2 decades.

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Effect of Banks in the Retail Sector

by Parth ReshamiyaPGDM-RM 2019-21 Retail Chronicles | Page 8

October, 2019

"Which is the most important part of the human body?" the obvious answer will be a heart. The heart doesn't produce anything. It just pumps the blood in and out but still, your body will stop if your heart stops. Today we are going to talk about the heart of the economy - "The banks".First of all, let me ask you a simple question, What is a bank? Your answer might be like," A bank is a financial institution licensed to receive deposits and make loans". Recently, there is news of slumping demands, and slowing down of the economy. We will understand how banks are affecting these sectors step by step.

First, business owners saw sales decline as consumers spent less money because of unemployment and shrinking household incomes.

Second, banks tightened their credit policies and began offering fewer loans and lines of credit to small companies. The combination of a recession and new financial regulations leads to a decrease in the overall availability of credit. And as we all know credit is the main concept in the economy. Just like individuals, banks lose money when the market declines. The number of loans that a bank is able to make decreases as market conditions worsen.

Banks and business one coin two side

Additionally, worsening market conditions may trigger regulations that require banks to hold more cash in reserve to ensure they will have sufficient funds to pay their liabilities. The more money that is held in reserve, the less money is available to be loaned to businesses and the tougher credit availability becomes 0.25 quarter low GDP and growth print for 5 percent indicates a further slowdown in the economy. Mixing of all these factors generates fear in the economy. Investors stop investing their money and business owners stop taking risks which give a push to the recession period.

Recent newspaper headlines were filled with some of the banking scams. Indian banking system detected Rs 71,500 crore worth of fraud in the financial year 201819 which to put in scale is slightly more than the Rs 71,000 crore recapitalization package planned by the government to revive the health of its public-sector banks. After these scams and increasing NPA, there was a perception of fear in banks. Business owners have felt the crunch of the recession in more ways than one.

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How the government is trying to fight with it?

The government came up with sectorspecific solutions for each of the problems.

The government has taken a slew of measures, including a massive cut in corporate taxes to revive economic growth, even at the cost of sacrificing revenues.

Hinting at other measures like steps to improve exports, easing credit, making more money available by early repayments to vendors and front-loading of banks recapitalization. RBI governor unveiled the host of bazooka measures to apply the grease on the road of growth. MPC decided to cut the repo rate by 25 basis points to address the Growth concern.

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. The government also decided to merge public sector banks. Mergers, when carried out in a systematic way, enable leveraging of synergies and expertise.

The government might have done its own math for the merger, but from the point of a heavily banked intermediated country, with a credit-to-GDP ratio of 75 percent, that still gives the industry a lot of space for growth.

In any economy, perception in the mind of people decides the future of the economy.

The Indian government tried hard to put a good perception in the mind of citizens by taking these measures. Now the question is how Indian citizens will react to these measures.

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IMPACT OF FMCG ON INDIAN ECONOMY Abhishek Wakode PGDM RM

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FMCG SECTOR & INDIAN ECONOMY The retail sector is one of the most important sectors when it comes to influencing the Indian economy. Fastmoving consumer goods (FMCG) are the fourth largest sector in the Indian economy.

There are three main segments in the sector – food and beverages which account for 19% of the sector, healthcare which accounts for 31% and household & personal care which accounts for the remaining 50%.

Also, the retail sector is the largest employment provider thus making it the most important sector to look upon which is further expected to grow 11-12% by the end of 2019. Whenever we talk about the impact of a particular thing, the first thing that comes to our mind is the economic impact but, the FMCG sector has a much wider impact on India in terms of employment, technology, the flow of cash, and the lifestyle of the people. The more developed the FMCG sector of a particular country is, the higher is the employment rate and the constant need to upgrade the operations involved gives rise to technological improvement. Furthermore, people get a variety of options to choose from and thus it largely affects their lifestyle. As far as the impact on the economy is concerned, the FMCG sector is the one that drives it from the grassroots level. Every local shop in urban or even rural area is into business due to the FMCG sector.

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These shops also hire people as helpers for customer engagement and service thus increasing the employment drastically in the rural areas. Any person with some basic education can make a living out of such local shops. Now, if we broaden the horizon, the FMCG sector demands constant innovation and up gradation in their products and the services following them. This creates a demand for highly skilled and educated people who would run the business, thus promoting employment in this scenario too. It is a well-known fact that the FMCG sector works on marginal profit provided they have a good reach in terms of scalability.

This process makes sure that there is a continuous flow of cash given that we have millions of transactions taking place every day. FMCG sector also strengthens the economy of a country by boosting its export opportunities which adds greatly to the country's economy, power, position and relations with other countries.

India is famously known for its high-quality agricultural products such as fruits, vegetables, spices, etc. Many FMCG companies use these raw materials to make products that are directly benefitting the farmers and other people. Growing awareness, easier access, and changing lifestyles are the key growth drivers for the consumer market.

The focus on agriculture, MSMEs, education, healthcare, infrastructure and tax rebate under the Union Budget 2019-20 is expected to directly impact the FMCG sector. These initiatives are expected to increase the disposable income in the hands of the common people, especially in a rural area, which will be beneficial for the sector.

Challenges Ahead Apart from the traditional brick and mortar stores, the emergence of online platforms like Amazon and Flipkart has made the distribution of products easier than ever. Retailers can now tap into the customers who have not even visited the stores. But as they say, every coin has two sides and hence there are some concerns regarding the way these online giants are affecting the small local retailers. If the government is not able to safeguard these shops which employ millions of people, the gap between the rich and the poor will increase exponentially. What do you think about the impact of the FMCG sector as a whole on India and do you support the dominance of online giants?

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APPAREL INDUSTRY: INDIA Keerthana Sontam PGDM RM

“Fashion is part of the daily air and it changes all the time, with all the events.

You can even see the approaching of a revolution in clothes. You can see and feel everything in clothes.”

-Diana Vreeland

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EVOLUTION OF APPAREL INDUSTRY IN INDIA

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Indian apparel is known for its grandiose, colorfulness, vibrancy, culture and heritage. The industry has a history of decades and it has been evolving in many ways. From Sarees to Salwar kameez to jeans and Kurti, from ethnic to western, the industry has gone through many transformations. As the proverb “History repeats itself� says, many of the old designs and traditions are used to make clothes that are both Indian as well as western.

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Clothing and fashion have come to mean different things for different people. For some it is means to express themselves, for some, it is to show their status in the society, for some it may just be a basic necessity. All this has also led to the invention of various styles of clothing at various price ranges. There are clothes made by designers that are highly-priced and there are clothes that are produced for mass at an affordable price range.

CURRENT APPAREL :

MARKET

SCENARIO

FOR

The apparel industry is one of the largest growing industries in India. It is the second largest industry in terms of employment as it provides opportunities to more than 35 million people in the country. Indian apparel industry contributes to 7 percent of industrial output, 2 per cent of India's GDP and 15 per cent of the country's export earnings. India's overall apparel exports during FY 2017-18 stood at US$ 39.2 billion. According to McKinsey’s latest report, India’s apparel market would be worth $ 59.3 billion by 2022, making it the sixth-largest in the world.

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Indian consumers are extremely price and brand conscious. People with abundant economic wealth still purchase high-end goods from international markets but this accounts for only 1 percent of the population. The remaining 99 % of people drive the apparel industry majorly. Many international companies are opening stores in India and the existing companies are looking for expansion into ecommerce websites.

The E-commerce industry also plays a major role and is expected to grow by 1520 percent over the next few years.

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CHALLENGES FACED BY THE APPAREL INDUSTRY:

1. Consumer Buying Behavior: With increasing media and internet exposure, the consumer is well informed about the latest trends and styles. This is leading to changes in consumer tastes rapidly. International brands like Zara are producing products, keeping in mind the changing consumer taste. Indian brands are also trying to gauge consumer preferences and make changes in their processes accordingly.

2. Infrastructure: Indian fashion retail is hit by infrastructural bottlenecks due to the poor conditions of roads, highways, etc. which creates supply chain constraints and increases inventory costs. The rising real estate costs are also a major concern for retailers.

3. Government policies: The new FDI rule bars online retailers from selling products via vendors in which they have a direct or indirect equity interest and also bars them from making deals with sellers to sell exclusively on their platforms. .

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3. Lower Efficiency: 5. Limited FTA’s:

The productivity levels in the Indian apparel factories are comparatively lower than China, Bangladesh and Turkey and therefore affecting the growth of the sector 4. Multi Fibre Agreement (MFA): MFA imposed quotas on the developing countries to limit exports to developed countries to protect the local farmers and suppliers of the developed countries from market shifts. For instance, the EU imposed no restrictions on emerging economies like Bangladesh, which not only led to the massive expansion of apparel industry in these countries but also made them much stronger competitors for the Indian apparel industry.

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Bangladesh, Cambodia, Pakistan, Turkey, etc. enjoy duty-free access to all the major textile markets of the US and the EU. India lacks FTA advantages to major markets which in turn make Indian products much more expensive compared to that of its competitors.

6. Sustainability: The growing knowledge about global warming and SDG goals has made people conscious about the products they are buying and which brand they are buying from. The government policies are also trying to ensure that manufacturing companies follow sustainable practices.

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THE WAY FORWARD:Â To attain higher growth rates the apparel industry has to reform, perform and transform its traditional functioning and outlook. In the changing global scenario, adopting new technologies is only one way of developing, companies need to develop methods and innovate themselves to use the available resources efficiently. Similarly, Companies need to have superior product quality, innovative design, customization, ontime delivery, technology innovations and finally an excellent after-sales service.

Chennai based Trustrace uses blockchain technology to improve transparency and traceability of supply chain, Madura Fashion &Lifestyle launched the Van Heusen Style Studio, which uses augmented reality todisplay outfits on customers etc. Thus, many innovations are coming up in theapparel industry. All these innovations, new government policies, rising percapita income etc will promote the apparel industry to a brighter future.

There are some companies which follow innovative ways to remodel themselves and provide better products to the customers.

Some examples such as Mumbai based Boheco uses hemp fibre instead of cotton,

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Retail Chronicle is a monthly newsletter of Retail Lab, the retail committee of KJ Somiaya Institute of Management Studies and Research, Mumbai.

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