Home / Trade & Economy / Flourishing retail business motivating world retailers to explore and expand in Pakistan

Flourishing retail business motivating world retailers to explore and expand in Pakistan

Published on 19th Dec, Edition 51, 2016

 

Retail stores are known to have been operative in China several centuries BC (before Christ). Till the breakup of the USSR (now Russia), most retail stores in all the communist countries were nationalized and still in most countries they remain so. However in some Central Asian states the trend is step by step changing and owned up retail stores are being encouraged and they are mustering up.

Nowadays departmental stores existed in Japan as early as the 17th century. The model of super market development was set in the United States in 1930, when Michael Cullin opened the first unit of what was to become the King Kullen Chain of Super Markets.The largest catalog houses in the world, Sears, Roebuck & company and Montgomery Ward & company were founded in the United States during the latter part of the 19th century.

Entry in Pakistan

Retailing in Pakistan has always been a small scale business, meant mainly for small and less or not educated businessmen. Till late sixties, large scale retailing institutions like Super Markets, Departmental Stores, and Discount Houses were not heard of in Pakistan.

Utility Store and Canteen Stores Department were functioning since the time of independence. These stores were merely mutual benefit stores for service of government servants and Defense Services personnel respectively.

In late sixties, in Lahore, a super market chain with the name of COOP stores was introduced. The CSD still remains a mutual benefit store but utility stores have been opened to general public.

In the rural areas of Pakistan the retailing still exists. Small shops provide necessary daily use items to the villagers from available stores. These days almost all grocery items, vegetable oil, and other essential items including shelf medicines are available but in fifties rather till late in sixties very few items could be purchased.

Other retail channels include ‘pan’ shops, petro marts, department stores, medical-cum-general stores, book shops, road side burger shop, tea shop and other distinguished shops. It is exciting to note that a number of ‘pan’ shops, particularly in urban Sindh and Punjab, carry various fast moving items like beverages, candies and biscuits.

According to estimates that the organized retail penetration in Pakistan (as percentage of overall retail sales) is around 5 percent. Modern trade penetration in different countries show varying degree of achievement: India 5 percent, China 20 percent, Indonesia 30 percent, Thailand 40 percent, Malaysia 55 percent, Taiwan 81 percent and USA 85 percent.

Despite the arrival of international companies like Metro, Makro and Hyper Star (Carrefour), growth in petro mart and launch of retail chains by local businessmen, the retail in Pakistan remain to a greater extent unorganized.

The retail sector in Pakistan has several restrictions such as small scale operations; lower level of operational skillfulness, lack of financial resources. Even then the retail sector in our country is very quick to meet customers’ requirements principally due to their involvement in neighborhood community.

The owner of a small store in some ‘mohalla’ in Karachi or Lahore or even in Faisalabad knows personally the residents of that locality as opposed to owner of departmental store in a major shopping area.

The government manages, mostly directly, thousands of retail grocery stores and mini super markets through entities like Utility Stores Corporation and Canteen Stores Department. USC manages around 6,000 stores which sell grocery items of daily use to general public at fair prices.

There are very few in numbers as compared to small retail stores. These are the types of stores which, in Karachi, were originally found in the areas of Jodia Bazaar and Joona Market only. Almost all the retailers in the city use to collect supplies from them till mid seventies.

Nevertheless, with the development of Karachi, such like stores were opened in the areas of Liaqatabad , Nazimabad, Landhi, Malir Colony, Shah Faisal Colony, New Karachi, North Karachi, Korangi, Orangi, Federal B area (Water Pump) and North Nazimabad.

We hear a lot of complain from our public regarding inferior quality of products being offered at utility stores; but we seems to not to see extent of public service these stores are providing by virtue of their geographical spread in the country.

During the past eight years, Pakistan has seen the arrival of a few international companies which has set a new direction for local retailing. The merged entity of Metro-Makro now operates ten stores in major cities including Karachi, Lahore, Islamabad and Faisalabad.

The opening of such macro stores few years back gives hard warning signals to small neighborhood retailers who feared that shoppers’ traffic would be shifted towards these glittering macro stores.

Two stores, one each in Karachi and Lahore, have been opened by France’s Carrefour under the brand name of ‘Hyper Star’. Dubai based Majid Al Futaim Group, to expand the network of Hyper Star in Pakistan as well. The opening of such stores has helped shoppers to enhance their exposure due to latest merchandising tools and promotions.

The liberal government policy towards Foreign Direct Investment for retailing combined with changing buying habits and rising expectations of shoppers will continue to provide enough motivation to world retailers to explore Pakistani market for any enlargement plan.

In many other countries including developing ones, Pakistan does not have many chains of retail outlets. To many it may be quite surprising particularly in view of successful operations of national chains.

Imtiaz, HKB, Al Fateh, Potpourri and a few others have more than a single outlet in urban centers, and can hence be named as chain.

The presence of world retail brands has provided Pakistani shoppers the vulnerability which is necessary in changing the buying behavior.

 

Already a popular name among Karachi’s middle-class, the Imtiaz Super Market has now extended its operations to cater to the Defence and Clifton localities of Karachi.

The retail chains in footwear have been operating in Pakistan since long. Servis has got more than 400 outlets selling their products. Bata has been operating in the country even before independence in 1947. English Boot House is operating with its seven branches.

The changing consumption habits and exposure to modern way of life by the Pakistani upper middle class and affluent class have given boost to growth of apparel and life style chain stores; Amir Adnan, Bareeze, Al Karam, Ideas by Gul Ahmed, Chen One, Chase, Cross Road, Junaid Jamshed and few others have become house hold names.

Further, chains of pharmacies coming up largely in urban town in recent years have been determined in building buyers trust as regards medicines. Such pharmacies have standardized set-up and are managed by qualified professionals. Zaka Pharmacy, Seven Seas Pharmacy is some of the prominent chains of pharmacies operating in Pakistan.

Hamdard, Qarshi, Hakeem Ajmal and a few other pharmaceutical companies, dealing in ‘Unani and ayurvedic, operate their own retail stores. In some of such medical stores, respective companies have appointed qualified hakeems, doctors and pharmacists- who provide medical advice to patients and prescribe medicines which are readily available at those outlets.

Grocery is likely to enter primarily in urban centers. In case some giant global retailer like Wal-Mart decides to enter Pakistan, the process of retail modernization may take a roller-coaster pace.

The role of global retailers currently operating in Pakistan will continue to grow. However, the growth rates in coming years may not be very different from current growth rates which, by any standard, are quite impressive.

Pakistan needs more professional people to manage affairs of retail sector. First challenge is to provide adequate training to existing small scale businessmen and work force if we have to move to organized retail format in true sense.

In the urban areas of Pakistan, almost all types of related outlets exist. The introduction of sector wise planned markets in the newly planned modern city of Islamabad the capital, gave new attributes to modern retailing in Pakistan. Thereafter almost in all other cities and new towns of Pakistan, where a new residential locality had to be developed, special emphasis was given to plan retail markets in a proper way.

In Pakistan, we do have department stores, but these stores do not come under large scale retailing. The people who are owners of these stores are generally the family members who are guided solely by their large profit making. Most of them did not have any professional training or any type of higher education. With the passage of time, however, more and more educated persons are now entering into the retailing business.

Despite dismal economic growth, leading super market chains – that mainly cater to middle and upper income classes have witnessed moderate to significant growth in consumer spending recently. Increase in consumer spending in grocery, textile and other items other retailers witnessed only slight to moderate growth.

It is observed consumer spending pattern in Pakistan – where half the economy is undocumented – cannot be considered as a measurement for economic recovery. The supermarkets in Pakistan cater mainly to highly privilege class of metropolitan areas therefore it does not paint the overall rosy picture of the economy.

Growth of retailing in Pakistan was supported by growing urbanization, the younger generation and middle-class consumers. Improvement in per capita income of local consumers also played a vital role in generating volume sales of store-based and non-store retailers.

Large retail formats, such as supermarkets and hypermarkets, took advantage of the opportunity and encouraged purchases by consumers through offering bundle packages and discounts on a frequent basis. In the same manner, small traditional grocers in urban areas realized the trend towards modernization and looked to expand their store selling space.

Modern retail formats such as supermarkets became quite popular among urban consumers for grocery shopping. Supermarkets started to be known as places for family trips.

It was observed that all family members of a household preferred to visit the retail format to shop for groceries once a month.

Retailers focused on catering to large numbers of consumers by opening outlets in every locality of urban areas. Another aim of this move was to save consumers in terms of travel costs, particularly those that shopped every day or week.

Consumers have started to prefer shopping for their non-grocery products at large modern retail formats, such as shopping centers and specialty stores.

Shopping centers were a particular favourite amongst consumers in 2015, as they provided entertainment and a large number of retailers under the same roof.

The availability of car parking was also one of the priorities of consumers when selecting a place for non-grocery shopping.

Internet retailing in Pakistan recorded strong double-digit current value growth in 2015. This was driven by the young urban populations, who had greater awareness of this channel and were more willing to experiment with it. One of the breakthroughs for the channel was the launch of an online shopping portal by Ufone Telecommunication Company (Umall).

Non-store retailing is expected to record triple-digit value growth at constant 2015 prices over some years of the forecast period. This extremely strong growth will be backed by the rise of internet retailing in Pakistan.

The large numbers of smartphone and internet users in the country will be the main factors behind growth of internet retailing during the forecast period.

The retail sector is booming in Punjab on the back of rapid urbanization and rising consumer spending that is fuelling significant investment in this sector across the province.

The growth in retail business is not restricted to a few large cities; it is thriving even in smaller urban centers and towns. Estimates of Pakistan’s retail market vary. The Punjab Board of Investment and Trade (PBIT) estimates retail industry to be worth around $42 billion with annual sales exceeding $105 billion.

The State Bank of Pakistan says retail sales grew to $133 billion in 2015 from $96 billion in 2011.Retail is the third largest sector of the economy after agriculture and industry, contributing about 18 percent to GDP, and is said to be the second largest employer providing jobs to 17 percent of the total workforce.

Major retailers agree that rapid urbanization with most cities connected through a vast well-built road network, spike in remittances, increase in average disposal urban household incomes, better-than-the-rest-of-the-country security conditions, higher returns, and young population are some of the major factors driving retail boom in Punjab for the last several years.

With the industry in the provinces reeling under energy shortages and high cost for several years now, more and more businessmen are investing in the retail sector to take advantage of the boom in the business.

Hyper stores, super markets, malls, etc providing consumers everything under one roof and are also influencing consumer behaviour and contributing to growing sales.

Heavy investments being made by the big business groups like Nishat and Packages in the modern shopping malls and markets in Lahore and elsewhere shows the growth potential of the retail industry.

CPEC impact

Some of the investors argue that implementation of the China-Pakistan Economic Corridor (CPEC) will unlock Punjab’s true retail potential.

The CPEC will unleash a major retail revolution across Punjab as well as in rest of the country. Everyone is now bracing for the opportunity CPEC is expected to bring. Organized retail sales boom has also fuelled demand for commercial real estate in cities and pushed rentals to all-time high.

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