Indian Retail Industry-Pantaloon Retail (India) Ltd. Part IV (ii)

PEST Analysis (continued)
Economic Environment

While analyzing the economic environment, attempts are generally made to evaluate (1) the growth rates in terms of gross domestic product (GDP), (2) foreign exchange reserves, (3) inflation rates, (4) levels of income distribution, (5) income bands, (6) interest rates, (6) levels of lending to small and medium enterprises (SMEs) and (7) the balance of payments (BOP). Analyzing the economic environment is important because of multifarious reasons, e.g. “a recession can have a significant effect on whether current customers can afford to continue purchasing certain types of branded products, particularly luxury or leisure-oriented ones that are generally ascribed to discretionary income categories” (Bensoussan & Fleisher, 2008, pp.180). Scanning the economic factors is necessary for organizations, especially retailers, because long-term economic volatility may jeopardize the prospects of a brand. Perhaps this is the reason why retailers should pay attention to international economic issues on a regular basis.

After the liberalization of its economy during the 1990s, various significant changes have taken place across almost all the economic sectors of India. It has been reported that “with the increase in cost of labor in their home market, many foreign retailers and manufacturers are sourcing products from developing countries”, and they have observed that “India, with its advantage of cheap labor and availability of raw materials, has strengthened its position as a sourcing hub and many international players such as Wal-Mart, Pottery Barn, Levi’s, Tommy Hilfiger, Crate and Barrel, Gap and Ralph Lauren are sourcing products such as garments and textiles, gems and jewelry, household items, leather products from India” (Mukherjee & Patel, 2005, pp.54). While it has been observed that some of these notable players have launched retail outlets, and others have started selling their products either through Indian retailers or franchising operations, “a survey by the research group ORG found that in 19 consumer goods categories, 1378 brands and 2579 individual products entered the Indian market between 1990 and 1996” (Mukherjee & Patel, 2005, pp.54), thereby resulting in a significant increase in the product base of chain retailers and bettering their sourcing options as well as average margins.

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