Impact of organized retailing on our economy

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While there is a lot of debate going on the impact of organized retailing on unorganized sector, there is little we know of how it will impact our economy in general. Common sense says that perhaps it will help the economy (every better looking thing is good for the economy..swanky Call centers that brought outsourcing to us helped in fueling the feel good factor.. same is for IT/BT companies..so similar should be the case with these retailers)

Surprisingly there are not enough reasons to contest this belief. No matter what communists say or Mayawati does in UP, or what short term glitches we witness on Sensex or in US economy, organized retailing is here to stay and grow at a breathtaking place.

So when it is so, I tried to look at it form a holistic point of view and no matter how much I desist to say this but yeah, I ultimately ended up with a PEST analysis.Here are the main points from that(I might post the complete version sometime later but before that I myself want to refine this and include the reaction that I get..if any :))

Political

Even though the government is yet to give the sector an Industry status and we see aggressive political protests, some aspects of the Government’s policy have been favourable on other fronts. For example- let’s take Delhi, NCR and Mumbai. In Mumbai, the Government is releasing unused textile mill land for retail development. In Delhi & NCR, the Government has released large tracts of land for retail development. Overall in politics, those in opposition will always oppose..so is there any point in talking about this?

Anyway main points to look out for are :

1. Decision on FDI

2. Government’s stand for foreign players

Economical

Although the organized retail sector constitutes only 4-5% of the USD 350 billion Indian retail market, it is expected to grow 400%- from USD 12-15 billion currently, to over USD 30.0 billion by 2010. There is hectic activity in the sector in terms of expansion, entry of international brands and retailers as well as focus on technology, operations and processes. All these present a tremendous opportunity in this new high growth industry. A large portion related to economic impact has already been covered in the previous sections

The important thing is that the growth of this sector will create a totally new demand in our economy. Households across India are now exposed to products and services they had never seen before, the tempting value proposition and an inviting atmosphere is making them purchase these items. Without the new stores the same money would have been sitting idle in some bank lockers. But now the money is out in market, helping the manufacturers to come out with new and innovative products. A great aggregation is also taking place now.. you can go and buy as much low quantities that you want, and the systems assist you in this because no one is bothered.

Imagine what happened in the Shampoo sachet market in India, prior to the entry of Velvet which later transformed the industry landscape ..no one was catering to the huge demand of affordable hair care solution. And today sachets hold 76% of the total shampoo market in India.. that means at least 60% more demand generation.

There is no doubt in my mind that we are seeing something similar in the case of organized retailers though the extent of this demand expansion and its wholesomeness can be debatable.

Social

There has been a demographic shift in India, emergence of a larger middle and upper middle classes and the substantial increase in disposable income has changed the nature of shopping in India from need based to lifestyle dictated. In addition to this, facilities like credit friendliness, availability of cheap finance and a drop in interest rates have changed consumer markets.

Organized retail increases the efficiencies in the agriculture sector by removing intermediaries in the food chain; as a result, farmers are getting better prices for their produce. The private retail players can actually introduce new technology, seeds, and thus encourage farmers to improve their productivity.

Unorganized retail is feeling the heat of the emergence of the organized retail due to the changing trends of the Indian consumers. Antagonist lobby claims, “In the last four years, an estimated two crore traders have been rendered jobless due to the opening of big shopping malls in the country”. However there is no evidence of a decline in overall employment in the unorganized sector as a result of the entry of organized retailers. According to the ICRIER survey, the unorganized sector witnessed a closure rate of 4.2% of which only 1.7% closures were attributed to competition from modern retail.

Large retailers like Wal-Mart can never impact small kirana stores in India. This is largely due to India’s socio-cultural heterogeneity and consumer choice. The consumer wants small retail. The ‘kirana’ store and the paan shop are seen as part of community life. Anyway it’s a long discussion and deserves a separate post in itself

Technological

With increasing competition, slimmer profit margins and diminished returns-cost cutting at every point of value chain has become important. Today’s global retail business strategies utilize technology. Ecommerce, Customer Relationship Management (CRM) software, Enterprise Resource Planning (ERP) and Point of Sale (POS) systems are all vital to retail businesses. Using these technologies retailers can actually gain key insights to further gain market share and increase revenue

Indian retailer would feel the need for technology only when he wants to grow beyond a certain point. This is one of the reasons why the traditional grocery is here to stay, with 90% of sales in India done through them.

OK, Now I stop... If you have read till now then please leave a comment and let me know of your reaction.

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Wow!

1Wow! great analysiss!

 

 

 

There will be an increasing

There will be an increasing pressure on the govt to open up the retail for foreign retailers due to WTO and FDI potential.
I"m waiting to visit the world class stores of WalMart, Carrefour etc
Hopefully that will teach a lesson to opportunistic players like Reliance-stale, Subhiksha etc

There will be an increasing

There will be an increasing pressure on the govt to open up the retail for foreign retailers due to WTO and FDI potential.

I"m waiting to visit the world class stores of WalMart, Carrefour etc

Hopefully that will teach a lesson to opportunistic players like Reliance-stale, Subhiksha etc

economical vs political

Lets see when the economical forces are able to push the political forces to create a growth environment for org retailing

Wow!

Great analysis Sir! waiting for the full version

Just to add I would like to know more about the employment generation vs job losses due to this organized retailing. I know about the ICRIER report but the figures given don't seems to be realistic? whats your take on that?

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