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Graduates Gain Edge on Understanding Global Retail Market

October 2011 | by Arun Pillutla, PhD, Professor and Chair, Managerial Studies


Today's graduates will enter a very tough job market. In addition to a high unemployment rate, the global business environment demands skills and knowledge of other cultures and markets in order to operate effectively. 

 

2010 Total Retail Sales ($ in trillions)

Growth Rate (by percent)

U.S.

4.40

6

India

0.44

10

China

1

20

EU

3.50

declining

Japan

1.10

 less than 1%

This skills and knowledge base are especially important in the retail industry. Why retail? Retail industry includes companies that sell directly to "ultimate" consumers. Although retail is universal, what works in one country may not work in another because retail sales techniques are intimately tied to each country's culture and context.

Additionally, retail is one of the largest employers–if not the largest employer–in the U.S. and elsewhere. An important measure of retail efficiency is sales per employee, which averages $48,000 in food services, $252,000 in the U.S. (2009) for all retail, but nearly $1 million per employee in internet retail.

Retail Facts

Although retail stores are open year-round, retail sales ebb and flow with the seasons. Key peak periods for seasonal sales are winter holidays, back-to-school, and certain special holidays (e.g., Mother's Day, Easter) in the U.S. 

Other markets also log major sales not only during winter holidays and back-to-school seasons, but also during local festivals. The Chinese New Year (January or February) in China and Diwali (usually in October) in India are two such periods. As we all have experienced at one time or another, retail pricing is a science in its own right. Gas prices, for example, fluctuate based on the time of the day, and "bestsellers" are perpetually on sale at your neighborhood Barnes & Noble. 

Retail in India and China

As the numbers indicate, the growth in India and China will be significantly more than the developed economies of Europe, Japan and the U.S. The growing middle classes and an appetite for consumer goods make India and China perfectly positioned for organized (e.g. supermarkets and chain stores) retail success. 

A typical retail establishment (called the Kirana shop, shown in the inset picture) in India is small, local, inefficient and inconvenient. While it is ubiquitous and handy for buying daily staples, it does not carry a wide range of goods, nor does it allow convenience of browsing before shopping. Investments into retail business in the recent past are expected to change the current picture of retail establishment. Companies like Wal-Mart, Carrefour, Tesco and others are eyeing the Indian market. 

The case of Wal-Mart entering India and China is very instructive. In 2007, China fully opened its market for foreign retail investments. By this time, a local chain store named Wumart (est. 1994) had pursued Wal-Mart's strategy of efficiency, low prices and large format stores to gain a strong foothold with 500 stores. Active competition between Wumart and Wal-Mart in China is bound to produce savings for consumers through logistical efficiency and better business practices.

India is still debating the opening of its market, although it permits large foreign chains to set up warehouses and supply chains. Wal-Mart is doing exactly that with its Indian venture partner, Bharti Enterprises. The joint venture, Best Price Modern Wholesale, began in 2007 and has seven stores today. These and new local retail businesses are hoping to bring efficiencies to retail trade to benefit the consumers and feed their own growth.

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