Who's afraid of Wal-Mart?
Its almost dinner time, and you suddenly realise that you've forgotten the dinner rolls that your wife asked you to get. Ouch, its too painful to step out And you cannot tell her that you forgot So what do you do? Lets take another instance, you get unexpected guests and you do not have the right edibles to serve You obviously cannot let them sit at home while you rush off to the market to pick up the basic necessities So once again, what do you do?
Another instance You aren't feeling well and need a medicine, well who has the energy to go to the chemist and pick up a pill so once again, what do you do?
Hypothetical situations, but they could happen to you too Welcome to reality, all you need to do is call up the neighbourhood store and the good humoured retailer, who has seen you grow up, would deliver whatever you need, straight at your doorstep. Convenient, isn't it?
And then one fine morning, you wake up to the news that an international retailer has set up shop barely a few kilometers away, and it is a dream to shop at. So, you pick up your car, and drive off. A completely new experience awaits you. A classy entrance, well-stacked racks, a neat ambience and friendly sales staff of course the variety of products available is unbelievable. There is another added advantage, you get a discount on bulk purchases too and you can use your credit card to pay, so you do not need to carry cash with you either.
Now the question that arises is that the next time when you need to shop, where do you go?
A 'part green' to FDI in retail
India is one of the most lucrative markets for international retailers. In fact, the scope offered by the market cannot be compared to any other country across the world. Retailing in India is still at a nascent stage and the market is largely unorganised. At the same time, the demands of consumers are increasing and the spending patterns are changing. So far, consumers saved a large chunk of their earning, while today the stress is on spending for a better lifestyle. With this fact clearly established, the potential for retailers is unlimited.
With the Government taking the decision to allow 51 per cent foreign direct investment(FDI), in single-brand retail outlets, the retail scenario in India is all set to see a change. The impact of the decision would not be visible on the Big Bazaars, Giant and Shopper's Stops but it will allow luxury brands like Marks & Spencer, Louis Vuitton, Gucci, Versace, and so on to open more stores in the country. So far, these brands existed in India through the franchisee route, so with the change in FDI norms, this would be the only sector to see a ripple. Undoubtedly, it would not be easy to set up company owned outlets across the expanse of the country. And the companys existence in the country would actually empower aspiring entrepreneurs by giving them the opportunity to take up a franchisee. So as a result, if you look at the larger picture in the longer run, the decision would work to the advantage of retailers as well as consumers.
The next move
With the decision taken and in place, it is not long to go before FDI would be allowed in the remaining areas in retail and soon we would have the Wal-Marts of the world at our doorstep. Though a decision that is being opposed by various segments of the retail sector, it might take time, but then it would happen. The basic reason for the apprehension amongst the retailers in India, is that the opening of FDI would threaten their existence and poach on their business. What these retailers need to take into consideration is the example of China, where the allowing of FDI gave a boost to the retail sector and worked to the advantage of not just the consumers but also the existing retailers. In fact with the entrance of retail giants into the country, the retail sector would undoubtedly revolutionise. These giants would introduce better managerial practices, higher technology, more economical supply chain measures, and would lead to a higher degree of specialisation and professionalism. As a result, these would influence the functioning of the existing retail outlets and would in general boost business across the nation. So, lets face it, who is afraid of Wal-mart?
As far as the increasing competition is concerned, this would definitely benefit the consumers as they would have a wider array of products to choose from. In terms of the impact that this would have on our local retailers is concerned, well the competition already exists. In fact, if you compare the smaller retailers with the existing large retailers, the product offering is more or less the same (Refer to our comparative table given above). The difference lies in the service, the operations and the setup. Largely, it is the same difference that would exist between the national and the international retailers.
The Indian advantage
The advantages and the disadvantages of opening FDI in retail in India, have been discussed in detail over and over again. The perspective that is largely ignored is the advantage that the existing retailers would have over the international giants, who would first have to establish themselves and alongside garner an understanding of the market. Our existing retailers have a well established network and understand the psyche of the consumers. They provide a 'personal touch' that further adds to the buying experience for the consumer as he can associate with the retailer more than the shop or the store. Most of us trust our neighbourhood store owners when they suggest a new product, basically because we have seen them all our lives and have a relationship with them that cannot be defined.
India can boast of having the largest number of retail outlets in the world and these outlets have penetrated to the core of the country. This set up, though largely known as the 'unorganised sector', in terms of size and its spread, is largely organised. Consumers across the nation, in most areas can simply walk over to these stores, as they are located close to their home, and address most of their basic needs.
The need of the hour is to empower these retailers so as to assure that they can truly leverage these advantages. On the basis of their strength, these retailers can actually hold their own and in fact by adopting the practices and methodology popularised by international retailers, our retailers can actually benefit in the long run. It is now time to take their functioning to the next level, by providing the requisite support system that can truly help them in leveraging the benefits of their experience and understanding. So, lets brace up and get set to welcome these giants and co-exist in a world that can work to the advantage of both.
FDI : Lets face it
On a recent flight, I had the opportunity to interact with one of the young union minister of our country. Before long, our discussion turned to the much debated topic at the moment, 'FDI in retail'. His take on it was simple, with 2,900 small retailers in his constituency the opening of FDI would throw them out of business. I then referred to the large Indian corporates who were eyeing the retail sector, even they posed as a threat to these smaller retailers. His prompt reply was that these could be controlled by the government. While I appreciated the concern for the smaller retailers, the only question that haunted me was that till when could we stop the obvious?
Going a step further lets review the concern, the concern is that with these global giants stepping in, our small retailers would lose their footing. And this stems from the lack of organisation, and proper supply chain systems. At the same time, the functioning of these retailers is at a small scale so they cannot benefit from the advantages offered by economies of scale. It is time for the government to take the initiative to organise small retailers, set up a platform for bulk buying, create a forum to educate and train these retailers, and further involve FMCG giants to upgrade system and provide the requisite support for small retailers. Most of the promotions and schemes are initiated by manufacturer so whether its food bazaar or a local kiryana shop, both can benefit equally if the network is in place. Also we must not underestimate the enterprising small retailer, whose retail skills that are used to analyse and project demand are as accurate as those of an organised retailer who depends on CRM and inventory planning through technology.
It is now time for us to face FDI, and take the steps that are essential to empower our smaller retailers.
- Gaurav Marya