Retailing Milestone

Last week’s formal entry of Reliance Industries into retailing, with massive upscaling plans, is likely to do a world of good to both retailing and the Indian consumer. Retailing is likely to get a leg up because large players (the Tatas are already there, the Mittals are not far behind, and plenty of others are eying the field) bring with them efficiencies, scale and large investments. Volume retailers are likely to take forward the economy’s logistics, supply chain management and distribution systems; cold chains will be set up, post-harvest agri-product losses will come down, and the price difference between what the farmer gets and what the consumer pays will reduce. Upstream, the Mittal venture is promising more income to farmers. Downstream, the intense competition will ensure that efficiency gains are mostly passed on to the consumer.

The importance of all this can be gauged from the experience of Japan and the US in the 1990s. Studies by McKinsey have shown that a key factor that enabled the US economy to bounce back into global leadership was the superiority of its distribution system. The mark-up between what the producer gets and what the end consumer pays was and still is vastly more in Japan than in the US. Organised retailing has been able to achieve this in the US by de-layering distribution. In India, the rapid geographical spread of organised retail chains into smaller cities and towns is likely to bring two other specific benefits. A huge number of entry-level jobs is likely to be created. With the spread of education, large numbers of school leavers who do not wish to study further will need decent jobs, particularly in the smaller towns. Retailing is likely to prove a boon for them. Plus, rapid growth in large retailing is likely to translate into similar growth in commercial real estate, resulting in more jobs in construction, which is labour-intensive activity.

Fear of organised retailing is two-fold. One is that it might mean the death of the corner shop, which will kill jobs in the informal sector and also take away the vibrancy of local cultures. The best argument against this is the experience so far. The rapid growth of organised retailing, from a 1 per cent share of total retailing in 1999 to over 4 per cent currently, has happened at absolutely no cost to “mom and pop” stores. There is little evidence of corner shops closing down because of the advent in a neighbourhood of a big retailer. Instead, what stands revealed is that both the corner shop and the big retailer have spaces of their own. In any case, studies have shown that there is a shortage of shelf-space in India, so more retail outlets are needed. The other fear, of massive foreign investment killing domestic retailing—big and small—has till now prevented the government from allowing foreign direct investment in retailing. Indian business houses share this fear and have been happy to get a head start in the sector, before foreign investment comes in. But just as opening up the economy as a whole did not kill Indian business, and only unshackled it, Indian retailers need to muster the self-confidence to take on large foreign players in retail.