Organised retailing with modern technology can guide theeconomy along, cut costs, curb avoidable losses, increase production andemployment as well as make available products to consumers at competitiveprices, emphasises


M K Panthaki


The spread of Retail Malls all through India is going on ata feverish pace, increasing in size from around 4 - lakh sq ft to almost 25times this size. Metros and its suburbs appear to have little space to offer.These are now entering Tier II and Tier III cities in the country but have notlost sight of the countryside where 60% of India's population lives. Theheartening fact is that the villages have welcomed them with open arms, goingone better than their urban cousins.


While plastic currency rules the urban consumers, it is hardcash from the villagers. Who in his right senses asserted that economic growthhas not percolated the countryside of India? There can always be exceptions toany economic theory even to the extent of wide dissimilarities in wealth. This istrue for all countries of the world including USA and China. There is no needto tear one's hair on this.


Difference in approach


While new big retailers are cropping up every other day,there is one general common thread running through all of them, again barringsome exceptions.


Some of the modern malls set up with high costs havenecessarily to cater to the creamy layer, at least with low volumes, in orderto arrive at a break-even as early as possible. The other, especially those wholed the retail revolution take care to guard their turf by roping in the humblegrocer with their operations. The modus operandi is to purchase directly fromthe manufacturer and route it to the customer through the local grocers, thuscutting out the middlemen who thus far, had made a pile at the expense of theconsumer.


Yet there are others who purchase the shops of the grocersat prices much above the prevailing land prices, thereby covering part (if not entirely)the grocer's annual margin, on condition that the grocer does not set upanother establishment in the vicinity in the products competing with those ofthe new landlord. This strategy suits both since the mall-owner gets areadymade, running establishment which therefore reduces his overheadsconsiderably, while the grocer gets more than his money's worth by selling hisestablishment at such high prices, to start another venture (perhaps moreprofitable) with ready cash.


Meanwhile, the existing grocers have honed their skills toensure customers loyalty. Whereas earlier, treatment given to customers will becasual, they now volunteer to take orders on telephone, be proactive with theirclients by offering new products in the store, give credit to regular customersfor one month and undertake home delivery. The store also re-arranges its itemsgiving preference to new items popular with customers, so that approach to thestore by a casual customer helps to stimulate sales in the store.

The consumer has never been having it so good in the pastcouple of years.


Small vs. Big


Big retailers with deep pockets are roaming the Indianlandscape. Shoppers Stop, Pantaloons, Trent, Pyramid, Hypercity, etc have setup their own Department Stores, Speciality Stores, Discount Stores all with aview to wooing the consumer. Going by the well-known adage: "Big Fish EatSmall Fish", one would have expected the local grocer or the Mom-and-PopStores to have vanished from the retail set-up.


Fortunately, this has not happened for two reasons: (I) thelocal stores yet have their own role to play in their limited area ofoperation; and (2) the Big Dealers need the smaller fry to spread theirtentacles and be wary of a Government backlash since the wiping out of thegrocer would create a serious unemployment problem, notwithstanding the factthat employment in the malls would go up faster than the employees displaced;however, the quality of the displaced employees would prevent theirre-employment even with training in the modern methods of technology.

 

Foreign retailers


This brings us to the question of Government apathy in permitting international retailers to enter the Indian Retail Scenario. As a small step, the Government has permitted foreign retailers to enter the Indian market for a single brand only.


But why such stop-go methods? If the object is to protect the local grocers, would they not have been displaced by the big retailers in India? What is the worst that foreign retailers can do? We are masters in our country and can lay down whatever conditions we deem appropriate to protect the locals. Let us look at the benefit consumers have derived by the entry of big Indian retailers. Is that not our concern too? For a start, we could limit their activity to back room operations as we have done with the Walmart-Bharati deal.


Let us not forget that Technology is not our privilege - in fact, we have much to catch up with the massive R & D that is resorted to in foreign countries. In almost all fields, they are in a position to come up with economies in cost, more efficient handling and low overheads to give the consumer the benefit of low prices. Should we not encourage this? This improved technology is what we need and yet, it is unfortunate, we are sacrificing this at the political alter. May be we have not been able to put this across to our political allies or to the public at large.


Such dilly-dallying tactics will work against us. Foreign retailers are anxious to enter India today due to lower costs of operation, a democratic form of government, a judiciary that is just and honest, and above all, a language well-understood and spoken on both sides. But how long?


With the benefit of its economic reforms percolating down to the lower strata of society, enhanced money returns are creating demands and stress on the economy. This is reflected in all spheres of activity, not the least in the construction industry. Prices of land are shooting up and may soon turn non-remunerative. These foreign retailers are looking for space to park themselves. They have been trying all methods to do so but not being locally familiar, prefer to piggyback on larger Indian Retailers. This has several advantages: a) Their products get exposure along with those of others which have already been familiar with the Indian consumer; b) Gives them time to scout for a suitable place at economic price with the help of the Indian retailer; and c) Work on a commission basis, which suits the Indian retailer as well as the foreign retailer, in preference to locking up capital in infrastructure. With every new store opened by the Indian retailer, goods of the foreign retailer get better exposure, and land costs are rising.


Another tactic adopted by foreign retailers barred from India by its questionable FDI policy, is to enter into joint venture with big Indian retailers with almost similar benefits though on a lower scale.


Once prices of prime locations get out of reach, foreign retailers may opt out of India and turn their attention to countries less advantageous than India but offering more scope and profit. Hence, delay is dangerous.


Around the World


Let us take a look around the world to see what other nations have to say encouraging international retailing.

European Union & United States are of course past members in the art of organised retailing. Elsewhere in Asia or East Europe, globalised retailing has helped the economy to expand, by increased local competition resulting in enhanced production, increasing employment and per capita wealth as well as reduced poverty. Organised retailing has been the harbinger of growth.


As a test-case let us compare the position in India with that in China, which is India's largest competitor in Asia. In both cases, economic reforms boosted the economy led by an export growth, but in the case of China, it was a conscious export-led growth.


 

An influential middle class with high incomes and great spending power came into being propelling the economy further. But this is where the two countries differ. While China continued to attract foreign investment by an artificially fixed rate of exchange to encourage exports, India resorted to a basket of currencies which kept the exchange rate floating. In both cases, organised retail pushed the economy to a higher growth path.


China is currently facing a situation of high exchange surpluses resulting in more money in the hands of Chinese exporters, in turn leading to higher purchases of food and non-food goods giving way to an inflationary tendency in the economy. Consequently, there are large differences in income within a State or even between States to the extent of a brewing social interest. Revaluation of the currency is now being considered.


On the other hand, export-led economic growth in India was more tempered due to the floating rate of exchange. However, rising incomes of exporters (until recently when the currency appreciated) coupled with inflow of Net Worth Indians to the homeland, created an unprecedented demand, which could not be matched by the manufacturing industry. In turn, this I d to a price inflation centering in food articles to contend which interest rates were raised to reduce demand, but this has also had an adverse impact on credit for production.


Thus, in both cases, organised retailing pushed their respective economies into high orbits though presence and prevalence of price inflation, though under entirely different circumstances.


Conclusion


Organised retailing with modern technology can guide the economy along, cut costs, curb avoidable losses, increase production and employment as well as make available products to consumers at competitive prices.


There is no time to waste on ideologies, for this can cost the country hard. Will India rise up to the challenge?


About the Author:


The author is Director with the Clothing Manufacturers Association of India (CMAI), Mumbai.



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