RETAIL MARKETING Influencing factors to Retail industry in Pakistan

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Influencing factors to Retail industry in Pakistan

Table of Contents ABSTRACT...................................................................................................................3 Dynamic Nature of Retailing.......................................................................................4 The influencing changing environments.....................................................................4 Economic factors:....................................................................................................4 Retailing affected by inflation and floods.............................................................5 Political/Legal factors..................................................................................................6 Sociological & Cultural factors:...................................................................................7 The evolution of the Pakistani consumer.................................................................8 A risk averse culture in Pakistan .............................................................................8 Changes with the changes in class system.............................................................9 Brand consciousness ..............................................................................................9 Technological/Educational/Managerial factors..........................................................11 A fragmented market...............................................................................................13 Competitive factors:.................................................................................................13 Competition is fragmented; foreign retailers boost modern retailing....................15 Ethical factors:..........................................................................................................15 The outlook for retailing is positive, but uncertainties remain..................................16 Conclusion................................................................................................................ 17 Trends that are touching the future of retailing....................................................17

Influencing factors to Retail industry in Pakistan

ABSTRACT
The revolution in retailing industry has brought many changes and also opened door for many Pakistani as well as foreign players. In a market like Pakistan there is a constant clash between challenges and opportunities but chances favor those companies that are trying to establish themselves. So to sustain in a market like Pakistan companies have to bring innovative solutions. Pakistani market has potential to accommodate many retail players, because still a small proportion of the pie is organized. We have tried in this report to discuss the factors affecting retailing like social, technological, legal, competitive, economic and environmental etc. It tries to describe the different segments in which retailing could have tremendous opportunity as well. Liberalization and communications revolution has also brought the global corporate culture to Pakistan; the habits of people are changing rapidly with changing life styles, changing ways of living, customer pattern and buying behavior. All the things are changing. These corporate sectors promoted activities and the glamour and pomp that surrounds in Pakistan is in sharp contrast to the physical and social conditions in lower and lower-middle income settlements. There is an introduction of fast-food chain stores, garments stores and international branded stores of different consumer items is available everywhere, they have opened up their branches in all the big cities of Pakistan. It is the emergence of new aspirations related to consumerism, and the desire for belonging to contemporary world as portrayed by the media. As the societal culture is changing so do the purchasing pattern of people. To meet their demands there is an advent of new shopping stores that have a new look now the shopping is not the matter like of old days.

Influencing factors to Retail industry in Pakistan

Dynamic Nature of Retailing

The dynamic nature of retailing has never been demonstrated, experienced and seen better than now. Changes in environments Economic, Political/Legal, Socio-cultural, Technological, Ethical and Competitive within which retailers of all kinds must operate, force adjustments in policies, methods and managerial strategies. The retailer has to be very familiar with the environmental factors. Also, he has to remain watchful of the continuous change taking place in the environments since the change in these factors has and will always have vital impact on survival, growth, profit making and ultimate success of the business. Therefore, as far as possible, all plans, objectives, strategies, policies have to be formulated and implemented, catering for and considering the changing environments.

The influencing changing environments

Economic, Political, Legal, Social, Cultural, Technological, Ethical and Competitive Environment significantly influence the conduct of retail enterprises and for each factor, as already emphasized, the retailer not only has to be familiar with them but also has to keep a close watch on the likely changes which may occur. The following forces under each factor need consideration at all times.

Economic factors:
The economy has a significant impact on the viability of a retail strategy. A micro level assessment considers the industry and market in which a company competes, the customers who purchase its products, the competitors, and competition who threatens it and the suppliers on which retailer depends. Pakistan is a developing country and its economy is the worlds 27 th largest economy based on its purchasing power. However, the country remained impoverished due to internal political disturbances and negligible foreign investment, since independence. With rise in development spending by Islamabad, the countrys poverty levels reduced by 10% from the year 2001 to 2007. The economy grew between 2004-07 due to rise in GDP from 5 to 8%. The growth of the economy was affected once again during the last three years due to global economic recession and mismanagement by the current democratic government. 4

Influencing factors to Retail industry in Pakistan

Retailing affected by inflation and floods Pakistans economy improved during 2010 in line with the global recovery. However, retailing sales in current value terms grew less in 2010 than that in 2009. This is because consumer spending was affected by other factors such as the large scale floods which hit Pakistan in July 2010 and high inflation. There was a lack of foreign entrants into retailing in 2010 due to foreign investors adopting a wait-andsee approach amid the economic uncertainties. Following economic factors are of great importance while drafting a retail strategy 1) Basic Economic System Basic economic system in Pakistan is a mixed type system. The Pakistani economic system provides ample opportunities for private retailers to enter grow and earn handsome profits from the growing market. 2) Economic Stability Economic stability is one factor that has affected the business scenario more than any other factors during last four years. Direct foreign invest is continuously decreasing from 2007 to onwards. Pakistani economy has been struggling miserably to show some sustainable growth in last few years which has disappointed the foreign investors gradually. 3) Market Size Pakistan market size is large and provides wide range of options for retailers to earn. According to an estimate Pakistani population is near 180 million now. This shows the potential for growth and development in retail sector in economy 4) Social Overhead Capital Social overhead capital is defined as Capital spent on social infrastructure, such as schools, universities, hospitals, libraries. As government spends on social overhead capital opportunities are available for public to grow that indirectly increases their purchasing power and in this way economy grows and prospers 5) Personal Disposable Income

Influencing factors to Retail industry in Pakistan

The amount of income left to an individual after taxes have been paid, available for spending and saving. Due to inflation, unemployment and unfair system of wealth distribution most of Pakistani have meager level of disposable income. 6) Distribution of Income In economics, income distribution is how a nations total economy is distributed amongst its population.[ The distribution of income lies at the heart of an enduring issue in political economythe extent to which government should redistribute income from those with more income to those with less. 7) Inflation In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.the current inflation rate in Pakistan is upto 14 % as per governmental resources but in reality it is more than 20% which has adversely affected the purchasing power of people in general and of middle class in special. In this scenario many of the new opened small retail outlets have faced irregular difficulties and set backs. Many businesses have shut down and many investors have withdrawal and transferred their capital from the country 8) Employment opportunities It is said that retailing can create additional two million jobs In Pakistan and will benefit population by employing local (Urban) youth and others directly or indirectly. But it is feared that our friendly neighborhood kirana shops where, one can make purchases in small quantities and return the goods if not found good and many more friendly services, will be on the verge of disappearance there by creating a vacuum which cannot be filled by the big organized one.

Political/Legal factors
The political environment of a country is influenced by the political organizations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. political stability in the country, foreign policy, Defense and military policy, image of 6

Influencing factors to Retail industry in Pakistan

the country and its leaders in and outside the country. The political environment of the country influences the business to a great extent. The current political climate can influence the types of legislation that can influence business spending or tariffs on goods and services. Political factors can be restrictive or beneficial. Restrictive factors are those factors that limit profits; such as constraints placed on enterprise through fair-trade laws, antitrust laws, tax laws, minimum wage legislation or pollution laws. Governmental influences are of particular interest to large retailers & those enterprises that operate in foreign countries where the political environment is volatile and information is scarce. Following political factors are of great importance while drafting a retail strategy 1) Political Stability Political stability is something that has never been witnessed in Pakistan regrettably since the time Pakistan has come into being. Political uncertainty, no doubt, is an investors nightmare. It does disturb the flow of foreign direct investment plans both into the private sector as well as the government owned public sector units and that surely affects economic growth and it has also striking impact on retail industry 2) Political Organization 3) Relevant Legal Rules: Quality, efficiency and effectiveness of the legal structure in terms of general business law, labor law, tax law, laws relevant to business and General Law & Order. 4) Degree of Law enforcement and reliability. 5) Flexibility of Law and Legal Changes.

Sociological & Cultural factors:

Social responsibility is defined as a managerial obligation to take actions that protects and improves both the welfare of society as whole and the interests of the organization. In recent years there have been multiple corporate ethical issues that have influenced social views. Unfortunately companies either those who are big in size or small retailers have being found guilty or not respecting the social norms and 7

Influencing factors to Retail industry in Pakistan

values of local culture in Pakistan. Sociological factors such as costs structure, customs and conventions, cultural heritage, view toward wealth and income, respect for seniority, mobility of labor etc. have farreaching impact on the business. These factors determine the work culture and mobility of labor, work groups etc. For instance, the nature of goods and services to be produced depends upon the demand of the people which in turn is affected by their attitudes, customs, so as cultural values fashion etc. Sociocultural environment determines the code of conduct the business should follow. The social groups such as trade unions or consumer forum will intervene if the business follows the unethical practices. For instance, if the firm is not paying fair wages to its business in indulging in black marketing or adulteration, consumers forums and various government agencies will take action against the business.

The evolution of the Pakistani consumer

In the past few years the whole concept of shopping has been altered in terms of format and consumer buying behavior. With the increasing urbanization, the Pakistani consumer is emerging as more trendconscious. There has also been a shift from price considerations to designs and quality as there is a greater focus on looking and feeling good (apparel as well as fitness. With the emergence of organized retail and modern retail formats, private labels have been gaining significance. They enhance the profitability levels of product categories, increase retailers negotiation powers and create consumer loyalty. More retailers are introducing their own brands in all categories including Food & Groceries, apparel, accessories, and footwear. These own brands also do not have to manage intermediaries since retailers maintain oversight of the supply chain. Today, customers buy experiences and not brands or products. Following Sociological-Cultural factors are of great importance while drafting a retail strategy Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption

A risk averse culture in Pakistan

Taking risk is a learned behavior but harshly it is being criminally neglected in our country. Most of the qualified people in the country are running behind small jobs while most of the entrepreneurs are mere literate. People from the very start of their life are taught to stay in boundaries and limits there for a risk taking mind is not flourished and developed. People keep on moving around the same circles as their forefathers. It is with dreams that our learning truly starts dreams that keep us awake! Our aspirations trigger curiosity and compel us to learn in order to build our capacity to create what we truly believe is important to us. We dare to dream only when we have faith in ourselves and in our future. Most organizations in Pakistan are driven along formal, hierarchical lines where people are afraid to truly say 8

Influencing factors to Retail industry in Pakistan

what they feel, and often resort to double talk saying yes, when they really mean No! While we may have acquired the capacity for using the latest buzzwords in management, our mentality has to change for us to start saying what we really mean in the best interest of the company and its stakeholders. We live in a risk-averse culture. This makes openness difficult thus impeding growth. Pakistan needs fundamental structural reforms to reorient the elitist policy framework into a `people centric` economic model. An inclusive growth strategy is a mean to an end of achieving development.

Changes with the changes in class system

The coming of modern retail formats is an important phenomenon in Pakistan. It can be considered a factor of the positive socio-economic change Vis a Vis growth in the urban Middle class, growth in disposable incomes, increasing proportion of working women and greater consumer awareness regarding the type of products purchased. This also raises the possibility of consumers visiting a retail outlet for the shopping experience rather than the actual shopping need. In Pakistan the neighborhood general store or the kiryana store has been the typical retail format for so long that the modern retail outlets like Makro and Metro don not just provide the typical array of retail products but also a complete shopping experience. Consumers will treat shopping like an outing by taking their family and friends along.

Brand consciousness
There is a growing orientation towards branded goods among Pakistan consumers, especially in urban areas. While in the past, consumers usually shopped according to price, nowadays consumers pay more attention to product quality and branding. The higher standard of living and the influx of Western culture have combined to make Pakistani consumer tastes more sophisticated. Another emerging trend is the rising status of women as consumers and decision makers. As more women enter the workforce, more women are also gaining economic independence and higher social status. Hence, demand for femalespecific products is on the rise. Retailers have responded by launching products and marketing activities which specifically target women.

1) Over all population growth Population growth in Pakistan is among highest in the world. This poses a good range of opportunities for retailers. We generally hear that economic development in Pakistan is slow due to large and increasing population. There are, on doubt, some countries with low population density and high per capita income, 9

Influencing factors to Retail industry in Pakistan

but there are also many countries with a high population density and a low per capita income. What really matters in economic development is not the size of the population but the quality of population regarding education, habit of hard work, and honesty. 2) Class structure 3) Mobility of people and individual mobility 4) Suburban living 5) Different Groups (Ethnic, Linguistic, Political, Religion, 6) Preferences, Biases, Prejudices and social values 5) Population growth in certain age groups Most of the population in Pakistan comprises of young people so retailers can in particular focus on this segment to earn handsome revenues

http://www.pap.org.pk/statistics/population.htm#tabfig-1.1

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Influencing factors to Retail industry in Pakistan

6) Culture All too often we see the cultural diversity within antagonism as an area of difficulty rather than as an opportunity to build competitive advantage. Frequently understanding the nature and value of cultural diversity is not well embedded within our business thinking and practice. In many ways thinking in this area has not developed in line with the trend to globalization. Ours is a mixed type of culture. This diversity in culture in reality opened new horizons of opportunities for the retailers. They can find many niches and competitive advantages in order to get ahead of their competitors by rightly focusing on the cultural diversity

Technological/Educational/Managerial factors
Technology factors are the scientific advances, which influence the competitive position of the retailer. Maintaining awareness of new technologies decreases the probability of becoming obsolete and promotes innovation. Advancements in technology can impact the transformation plan in many ways. New technology can change the demand for a product, render current selling processes obsolete, and reduce costs to undercut competitors, produce new products and a host of other possibilities. . Pakistan lacks a strong supply chain when compared to Europe or the USA. The existing supply chain has too many intermediaries: Typical supply chain looks like:- Manufacturer - National distributor - Regional distributor - Local wholesaler - Retailer - Consumer. This implies that global retail chains will have to build a supply chain network from scratch. This might run foul with the existing supply chain operators. In addition to fragmented supply chain, the trucking and transportation system is antiquated. The concept of container trucks, automated warehousing is yet to take root in Pakistan. The result: significant losses/damages during shipping. 1) Industrialization Industrialization is the engine of growth in economy. Europe and west have achieved high mark of growth at the dint of industrialization. Rough outline for the reason of poor industrial structure in Pakistan include: Power shortage Lack of trained manpower Lack of proper infrastructure 11

Influencing factors to Retail industry in Pakistan

Inefficiency Lack of products innovation resulting in concentration of industries in some specific sectors. Changing political and economic policies Bad law and order situation resulting in lower investment in industries Corruption in related government agencies and so many govt. agencies intervention Higher interest rate

These are some of the problems, being faced by industries in Pakistan. One can include more points to the list. 2) Structural changes in market According to Nielsen data provided by the study, the distribution of kiryana stores has Fallen from 1.61 per thousand (population) to 1.51 over the decade 1992-2002. There has been a rise in the distribution of general stores over the same period from 1.09 to 2.71 per thousand. Kiryana stores and general stores currently comprise 95% of total Retail sales. The number of outlets per thousand is currently 15 for urban Pakistan. However, with the advent of Global Retailers it is predicted to fall to 10. At the same time the share of kiryana and general stores as a percentage of retail sales is also expected to decline to 50%. Another result would be a shift from the over the counter dealing with the shop keeper, Purchasing behavior to using trolleys, individually picking items from aisles and then Lining up in queues to check out the products purchased. This change in retail outlets described as retail consolidation by Ghani (2005) occurred in the late nineteenth century in North America and Europe and is recently taking place in Pakistan. Similar to the case of foreign markets, Pakistan is also facing a rise in the self service modern Retail outlets with stores like Makro and Metro opening in Pakistan and Carrefour. The retail climate is already witnessing a rise in consumer awareness resulting in a greater demand for foreign products, frozen and ready to cook items and an entire shopping experience for customers. 3) literacy level Original literacy level in Pakistan is not very appreciable. Governmental figures in this regard do not depict the original picture instead claiming false facts. Due to lack of literacy and modern knowledge 12

Influencing factors to Retail industry in Pakistan

of technology different kinds of hurdles come in the way of investors like self operated machines and Plastic money have not gained much popularity in Pakistan due to lack of technological literacy 4) Attitude of people Attitude of people is not positive about the use of new technology because of different reason some of them are highlighted here High cost Reluctance to learn new ways Adherences to old ways

5) Enhanced means of transport and communication

A fragmented market
According to the Small & Medium Enterprise Development Authority, there are over 125,000 retail outlets all across Pakistan. Approximately 94 per cent of these are miniscule corner shops and small retail outlets in cities and villages. This poses a significant challenge for most businesses looking to enter the food and agribusiness sector. Despite the fact that Pakistanis spend close to $42 billion a year on food and other retail shopping, businesses find it very difficult to reach the mass market of Pakistani consumers simply because it is not a single marketplace but tens of thousands of little shops. Urban areas form a somewhat more concentrated market. Some 30,000 stores serve close to 55 per cent of the population. Yet even this market does not have a single chain of retail outlets that has its own integrated supply chain. This fragmentation of the market has a very real impact on the profitability of food and consumer goods producers.

Competitive factors:
Every business has external peers that perform similar functions within their professional discipline. These peers are considered competitors and they are rival producers of goods or services. These competitors contribute to the overall industry by their ability to deliver goods and services of high caliber at competitive prices. Competition is good from a market perspective as it gives consumers choices and 13

Influencing factors to Retail industry in Pakistan

provides the businesses and opportunity to create a niche. Competitors are purchased as a strategic move to gain market share 1) Number and Type of competitors The high growth in the retail sector can be witnessed in the great surge in the number and different formats of retail outlets that deliver a value added shopping experience. The most notable trend among all retail sectors can be seen in the food and grocery business. Traditionally grocery purchases were limited to the neighborhood general store, which is typified by the counter service format, easy credit terms, limited variety and personal service. However the last decade has seen the growth of organized retailing. Organized retailing is embodied by self-service stores, which provide convenience in the form of organized aisles, greater choice, push trolley system, and a single check out point. Local stores like Naheed Super Store, Imtiaz Store, D Mart, Ebco, mysuper Store in Karachi have given rise to a whole new shopping experience. The facilities offered by such stores have added a whole new dimension to grocery retailing. With the entry of global retailers (grs) in Pakistan, the Dutch based Makro and German Metro cash and carry, in Karachi and Lahore the retailing scene is set to change profoundly. Changes which occurred over the last decade in the retail sector in urban Pakistan, in terms of a decrease in traditional kiryana stores, an increase in general stores, and the emergence of new formats such as superstores, malls, and retail chains. These trends are discussed in the context of broader socioeconomic changes, including growth in the urban middle class and disposable incomes. The paper discusses similar trends that occurred in the late nineteenth century in North America and Europe, the recent rise in international retailing, and the possibility of global retailers such as Germany's Metro and the French Carrefour, entering the Pakistani market. The entry of such firms has often resulted in profoundly altering the retail landscape, as has been the experience in the less developed markets of East Europe, Latin America, and the Asia Pacific region. It is estimated that in 2002, about 6.8 million of the 50 million people living in urban Pakistan belonged to the upper and uppermiddle class, and represented a grocery market worth $1.7 billion. This segment, projected to grow to 17 million people by the year 2010, is expected to be the first to switch to modern retail stores. This paper projects the impact global retailers might have on Pakistan's retail landscape.

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Influencing factors to Retail industry in Pakistan

Competition is fragmented; foreign retailers boost modern retailing

Retailing in Pakistan remains highly fragmented and is dominated by small retailers, which compete within their own geographic areas in terms of price, personal relationships and product ranges. Large retail stores are mainly found in the major cities where there is a higher concentration of middle and upper-income consumers. Large supermarkets such as Aghas Supermarket and Naheeds have existed in Pakistan for decades. Yet it is the advent of large foreign players which is fuelling the countrys modern retailing revolution. Carrefour, the France-based chained hypermarkets retailer, has been operating a hypermarket outlet in Lahore since 2007 and plans to set up more outlets in Pakistan over the forecast period. 2) Strength of competitors 3) Size of Competitors

Ethical factors:
1) Integrity/Honesty of the Competitors 2) Integrity/Honesty of the people The teachings of Holy Prophet (PBUH) can solve all problems facing the business community and industrial sector of Pakistan. The Muslims ruled the world for more than six centuries as long as they followed the rules and regulations and guidelines given by the Holy Prophet (PBUH) but their decline started when they deviated from the guidelines. Life of Prophet Muhammad (PBUH) is a genuine role model for business world. we recite Darood but do not follow the teachings of the Prophet (PBUH). Hypocrisy had not only destroyed business but all segments of society were affected by it. that there is no better example for business community to follow than the life of Holy Prophet (PBUH).Holy Prophet (PBUH) was always fair and honest in business and other relations. Holy Prophet (PBUH) stressed the need for fair earnings while prohibited interest. However, unfortunately, our complete financial system is based on interest; terming it a reason for decline of Muslims Sahaba followed the teachings of the Holy Prophet (PBUH) with love and respect. However, Muslims do not follow him. Following the teachings of 15

Influencing factors to Retail industry in Pakistan

Quran and Sunnah is success of life. A successful businessman can be recognized with his honesty in dealings. Following the teachings of Prophet Muhammad (PBUH) is the only solution to end corruption from society. All employees should have the opportunity to contribute, learn, grow and advance based on merit. Ethical principles which employees must follow include: honesty keeping their promises fairness respect of others cohesion integrity loyalty

1) Ethical conduct and values of people and workers Ethical behavior is an individual responsibility. Behavior reflecting high ethical standards is expected of all executives and employees regardless of their position or location. Again unfortunately in this sector our country is unable to put forward a good example

The outlook for retailing is positive, but uncertainties remain

The effects of the improved global economic situation were evident in Pakistan during 2010. This is expected to boost retailing value sales over the forecast period. However, high inflation will have a negative impact on consumer spending. Although inflation is currently on the decline, it may spike again due to unforeseen circumstances including adverse weather conditions, natural disasters and changes in global demand. Other factors which may impede retailing include terrorism, corruption, and general domestic turmoil.

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Influencing factors to Retail industry in Pakistan

Conclusion
Modern retailing is scrambled and we will probably see more changes in the future. In such a dynamic environment, a retailers marketing manager must choose very carefully among the available kinds of strategies. And retailer must plan their marketing mixes with their targets customers needs in mind while at the same time becoming the part of an effective channel system. The retail sector in Pakistan is witnessing a huge revamping exercise as traditional markets make a way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western style malls have begun appearing in metros and second-rung cities which introduced the Pakistani consumer to a shopping experience like never before. Rated high among most attractive emerging retail market, Pakistan is being seen as a potential market. Many foreign investors are also showing keen interest to enter into the Pakistani market. With the flow of FDI, retail sector will have to see a many changes in the coming years. Disorderly merchandising will continue as retailing evolves to meet changing consumers demands. But important breakthroughs are still possible our society needs a retailing function but all the present retailers may not be needed. It is safe to say that the future retail scene will offer new challenges and opportunities.

Trends that are touching the future of retailing

1) The increase in population and slowed down economic growth 2) Retailers can no longer enjoy sales and profit growth through natural expansion in current and new markets 3) Greater competition and new types of retailers make it harder to improve market shares in existing markets 4) Consumer demographics, lifestyles, and shopping patterns are changing rapidly 5) Quickly rising costs make more efficient operation and smarter buying essential to successful retailing 6) Retail technologies are growing in importance as competitive tools to produce better forecasts, control inventory costs, order electronically from suppliers, communicate between stores, and sell to consumers within stores.

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