ITM,VASHI

Retail Management
Impact of FDI in Retail
Arun Balkrishna Khedwal
2nd August 2014
Ref No: VAS2012XMBA25P001

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Chapter
Topic details Page No
No

1 Introduction – Retailing 3-13

o Classification of Retail Formats

o Benefits of Retailers

o Ways to Categorize Retailers

o Retail Categories: Pricing Strategy

2 Retail Mix 14-24

3 Retail in India 25-30

o Retail in India - The Past, Present and Future

4 FDI in Retail 31-56

o Indian Retail: FDI -The Implications

o Foreign Direct Investment (FDI) in India

o Lessons from a global perspective

o Impact of organized retail on unorganized Retail

(Case Study – China)

o Impact of FDI in other parts of the world

5 Conclusion and Recommendation 57-69

o Pros and Cons of FDI in Retail in India

o Conclusion

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 Chapter 1: Introduction

1.1 Retailing

Definition

Commercial transaction in which a buyer intends to consume the good or

service through personal, family, or household use.

Retailing is a distribution channel function where one organization buys

products from supplying firms or manufactures the product themselves, and
then sells these directly to consumers. A retailer is a reseller (i.e., obtains
product from one party in order to sell to another) from which a consumer
purchases products.

In the majority of retail situations, the organization from which a consumer

makes purchases is a reseller of products obtained from others and not the
product manufacturer. Some manufacturers operate their own retail outlets in a
corporate channel arrangement. While consumers are the retailer’s buyers, a
consumer does not always buy from retailers. For instance, when a consumer
purchases from another consumer (e.g., eBay) the consumer purchase would
not be classified as a retail purchase. This distinction can get confusing but in
the US and other countries the dividing line is whether the one selling to
consumers is classified as a business (e.g., legal and tax purposes) or is
selling as a hobby without a legal business standing.

Figure 1.1.1 Retail Management

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As a reseller, retailers offer many benefits to suppliers and customers as we
discussed in the Distribution Decisions tutorial. For consumers the most
important benefits relate to the ability to purchase small quantities of a wide
assortment of products at prices that are considered reasonably affordable.
For suppliers the most important benefits relate to offering opportunities to
reach their target market, build product demand through retail promotions, and
provide consumer feedback to the product marketer.

The practice of retailing is continuously evolving. New formats are born and old
ones die. Incessant pressure to improve efficiency and effectiveness and a
continual effort to serve the customer better forces the retailers to find new
ways of doing business. This has also resulted in a shortened lifecycle for
retail formats. For example, in the late 1980s most retail experts agreed that
hypermarkets would be retailing’s success story of the 1990s. However,
despite their overwhelming success in Europe and their limited success in the
United States, these mega stores were retailing’s biggest failure in the 1990s.
The customers were unnerved by the sheer size of these stores. In addition,
category killers offered greater selection and wholesale clubs offered better
prices, while supermarkets and discounters offered more convenient locations.
Another retail format that didn’t achieve the success predicted was the off -
price retailer because the regular merchants, including discounters, became
more prices competitive on the brands the off-pricer was currently selling.
Although these retailing formats have not lived up to expectations, many other
new formats are emerging.

Figure 1.1.2 Evolution of Indian Retail Market

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 1.2 Classification of Retail Formats

The term retail institution refers to the basic format or structure of a business.
Classification for Retail institutions is necessary to enable firms to better
understand and enact their own strategies: selecting an organizational mission,
choosing an ownership alternative, defining the goods/ service category and
setting objectives.

The classification is not mutually exclusive; that is, an institution may be

correctly placed in more than one category. For example, a department store
unit may be part of a chain, have a store-based strategy, accept mail order
sales, and have a Web site. These are commonly used typographies. They are
likely to vary between countries. For instance, a Kirana store in India or car
boot sales in the UK.

Ownership Based

Retailing is one of the few sectors in our economy where entrepreneurial

activity is extensive. Although retailers are primarily small (80% of all stores
are operated by firms with one outlet and over one-half of all firms have two or
fewer paid employees), there are also very large retailers.

Retail firms may be independently owned, chain owned, franchisee operated,

leased departments, owned by manufacturers or wholesalers, consumer
owned. From a positioning and operating perspective, each ownership format
delivers unique value. Retail executives must work on the strengths and
weaknesses inherent in each of these formats to be successful.

Independents

An Independent retailer owns a single retail unit. In the United States, they
account for nearly 80 percent of total retail establishments and firms generate
just 3 percent of total U.S. store sales. One half of all independents are run
entirely by the owners and/or their families and have no paid workers. The high
number of independent retailers is associated with the ease of entry into the
marketplace, owing to low capital requirement, no or relatively simple,
licensing procedures. The ease of entry into retailing is reflected in the low
market shares of the leading firms in many goods /service categories as a
percentage of total category sales. For example, in the grocery store category
where large chains are quite strong, the five largest grocery retailers account
for only about 22 percent of sales. A similar large format in India contributed to
less than 3% of total retail sales. The Indian retail market has around 12
million outlets and has the largest retail outlet density in the world. However,
most of these outlets are basic mom-and-pop stores with very basic offerings,
fixed prices, and no ambience. These are highly competitive stores due to

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cheap land prices and labour. Also, most of the time these stores save tax as
they belong to the small industry sector.

Due to relative ease of entry into retailing, there is a great deal of competition
resulting in the high rate of retail business failures among new firms. According
to Small Business Administration estimates one-third of new U.S. retailers do
not survive their first year and two –thirds do not continue beyond their third
year. Most of the failures involve independents.

These stores have a great deal of flexibility in choosing retail formats and
locations. They target smaller consumer segments rather than mass markets.
Since only one store location is involved, detailed specifications can be set for
determining best location, product assortments, prices, store hours, and other
factors consistent with their target segment. They have low investments in
terms of lease, fixtures, workers and merchandise. Thirdly, independents often
act as specialists and acquire skills in a niche for a particular goods/service
category. Decision-making in these stores is usually centralised as the owner
operator is typically on the premises, who have a strong entrepreneurial drive
as they have personal investment in the business, success or failure has huge
implications, and there is a lot of ego involvement. They are consistent in their
efforts as they generally adopt just one strategy.

There are some disadvantages of independent retailing. They have limited

bargaining power with suppliers as they often buy in small quantities.
Reordering may also be tough if minimum order requirements are too high for
them to qualify. To overcome this problem, a number of independents form
buying groups. Due to low economies in buying and maintaining inventory, the
transportation, ordering, and handling costs are higher. These stores often
have operations that are labour intensive, sometimes with little
computerisation. Ordering, taking inventory, marking items, ringing up sales
and bookkeeping may be done manually as most independents tend to find
investment in technology and training not worthy. Compared to other formats,
Independents incur high costs of advertising due to limited access to
advertising media and may pay higher fees compared to regular users. There
is often disruption when the owner is ill, on vacation, or retires. They also
allocate limited amount of time and resources to long term planning. To offset
the disadvantage of economies, these retailers offer complementary
merchandise and services. Often while all stores in the chain offer the same
merchandise, independents can provide merchandise compatible with local
market needs.

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Chains

A chain retailer operates multiple outlets (store units) under common. In

developed economies, they account for nearly a quarter of retail outlets and
over 50 percent of retail sales. Retail chains can range from two stores to
retailers with over 1,000 stores. Some retail chains are divisions of larger
corporations or holding companies.

Chain Retailers have several advantages. They enjoy strong bargaining power
with suppliers due to the volumes of purchases. They generally bypass
wholesalers. Many of them buy directly from the manufacturers. Suppliers
service the orders from chains promptly and extend a higher level of proper
service and selling support. New brands reach these stores faster. Most of
these chains sell private. Chains achieve efficiency due to the centralisation of
purchasing and warehousing and computerisation. Wider geographic coverage
of markets allows chains to utilize all forms of media. Most of the chains invest
considerable time and resources in long term planning, monitoring
opportunities and threats.

Chain retailers suffer from limited flexibility, as they need to be consistent

throughout in terms of prices, promotions, and product assortments. Chain
retailers have high investments in multiple leases, fixtures, product
assortments and employees. Due to their spread, these retailers have reduced
control, lack of communication and time delays. Thus, such retailers focus on
managing a specific retail format for a better strategic advantage and
increased profitability. Some chain retailers capitalise on their widely known
image and adopt flexibility to market changes.

Franchising

Franchising is a contractual agreement between a franchiser and a franchisee

that allows the franchisee to operate a retail outlet using a name and format
developed and supported by the franchiser. Approximately one –third of all
U.S. retail sales are made by franchisees. In a franchise contract the
franchisee pays a lump sum plus a royalty on all sales for the right to operate a
store in a specific location. The franchisee also agrees to operate the outlet in
accordance with procedures prescribed by the franchisers. The franchiser
provides assistance in locating and building the store, developing the products
and/or services sold, management training and advertising.

There are two types of franchising: product/ trademark and business format. In
product/ trademark franchising, franchisees acquire the identities of the
franchiser by agreeing to sell the latter’s product and/or operate under the
latter’s names. But they are independent in their operation. They may draw
certain operating rules in consultation with the franchiser. In a business format
franchising arrangement, the two parties have a synergetic relationship. The

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franchiser provides assistance in strategic and operation issues besides the
right to sell goods and services. The franchisees can take advantage of
prototype stores, standardised product lines and cooperative advertising.

Three structural arrangements are found in retail franchising.

(a) Manufacturer- retailer; where a manufacturer the right to sell goods and
related services through a licensing agreement as in the case of automotive
dealers and petroleum products dealers.

(b) Wholesaler- retailer; which may take the form of a voluntary franchise
system as in consumer electronic stores or co-operative where a group of
retailers set up a franchise system and share the ownership and operations of
a wholesaling organisation.

(c) Service sponsor retailer, where a service firm licenses individual retailers to
let them offer specific service package to consumers, such as auto rental,
hotels and fast food restaurants.

This arrangement has several advantages. Individual franchisees can own

retail enterprises with relatively small capital investments. Franchise rs gain a
national or global presence quickly and with less investment. It improves cash
flow as money is obtained when goods are delivered rather than when they are
sold. Since franchisees are owners and not employees, they have a greater
incentive to work hard.

Franchisees may also have to face certain disadvantages. Over saturation

could occur adversely affecting the sales and profits of each unit. They may
enter into contract provisions that give the franchisers undue advantage. The
can exclude franchisees from, or limit their involvement in, the strategic
planning process. Franchisers also face a lot of potential problems.
Franchisees can harm a firm’s overall reputation and/ or customer loyalty if
they do not adhere to company standards. Intra-franchise competition is not
desirable. Ineffective franchised units directly impact franchiser profitability
from selling services, materials, or products to the franchisees and from royalty
fees. Franchisees, in greater numbers, are seeking independence from
franchiser rules and regulations.

Leased Department

A Leased Department is a department in a retail store rented generally by a

manufacturer. The lessee is responsible for all aspects of business and pays
the store a rent. The store may impose operating restrictions for the leased
department to ensure the overall consistency. The leased departments choose
to operate in categories that are generally on the fringe of the store’s major
product lines, such as in-store beauty salons, banks, photographic studios and
food courts.
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Leased departments help the stores in generating greater traffic and providing
one stop shopping. They benefit from expertise of lessees in personal
management, merchandise displays, the recording of items, as store personnel
might lack the merchandising ability to handle and sell certain goods and
services. This is also a regular source of revenue and reduces costs as leased
departments pay for inventory and personal expenses. This may also be a
source of conflict with lessees as leased departments may use operating
procedures which conflict with those of the stores. The lessees may adversely
affect stores’ images and customers may blame problems on the host stores
rather than on the lessees.

The leased department operator’s benefit as the main store generates

immediate sales for leased departments. This arrangement reduces expenses
through economics of scale (like pooled advertising) and shared facilities (like
security equipment and display windows). Also lessees’ images are aided by
there relationships with popular stores. However, there may be inflexibility due
to the restrictions imposed by the operations of the main store. There is always
the fear that the stores may raise the rent or may not renew leases when they
expire even if lessees are successful.

1.3 Benefits of Retailers

As a reseller, retailers offer many benefits to suppliers and customers as we

discussed in the Distribution Decision Tutorial. The major benefits for each
include:

Access to Customers: – For suppliers, the most valuable benefits provided by

retailers are the opportunities they offer for reaching the supplier’s target
market, building product demand through retail promotions, and providing
consumer feedback. The knowledge and skills offered by retailers are key for
generating sales, profits, and customer loyalty for suppliers.

Access to Product: – For consumers, the most significant benefits offered by

retailers relate to the ability to purchase products that may not otherwise be
easily available if the consumers had to deal directly with product suppliers. In
particular, retailers provide consumers with the ability to purchase small
quantities of a wide assortment of products at prices that are considered
reasonably affordable. Additionally, when it comes to retailers with physical
locations (e.g., retail store), these are likely to be located near the retailer’s
target market; thereby, enabling consumers to make purchases and take home
the product much more conveniently than if they had to visit a product
supplier’s facility or purchase via the Internet.

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 1.4 Ways to Categorize Retailers

There are many ways retailers can be categorized depending on the

characteristics being evaluated. For our purposes we will separate retailers
based on six factors directly related to major marketing decisions:

 Target Markets Served

 Product Offerings
 Pricing Structure
 Promotional Emphasis
 Distribution Method
 Service Level

And one operational factor:

 Ownership Structure

However, these groups are not meant to be mutually exclusive. In fact, as we

will see in some way all retailers can placed into each category.

The first classification looks at the type of markets a retailer intends to target.
These categories are identical to the classification scheme we sa w in the
Distribution Decisions tutorial when we discussed the levels of distribution
coverage.

Mass Market: – Mass market retailers appeal to the largest market possible by
selling products of interest to nearly all consumers. With such a large market
from which to draw customers, the competition among these retailers is often
fierce.

Specialty Market: – Retailers categorized as servicing the specialty market

are likely to target buyers looking for products having certain features that go
beyond mass marketed products, such as customers who require more
advanced product options or higher level of customer service. While not as
large as the mass market, the target market serviced by specialty retailers can
be sizable.

Exclusive Market: – Appealing to this market means appealing to

discriminating customers who are often willing to pay a premium for features
found in very few products and for highly personalized services. Since this
target market is small, the number of retailers addressing this market within a
given geographic area may also be small.

1.5 Retail Categories: Product Offerings

Under this classification retailers are divided based on the width (i.e., number
of different product lines) and depth (i.e., number of different products within a
product line) of the products they carry.

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General Merchandisers: – These retailers carry a wide range of product
categories (i.e., broad width) though the number of different items within a
particular product line is generally limited (i.e., shallow depth).

Multiple Lines Specialty Merchandisers: - Retailers classified in this

category stock a limited number of product lines (i.e., narrow width) but within
the categories they handle they often offer a greater selection (i.e., extended
depth) than are offered by general merchandisers. For example, a consumer
electronics retailer would fall into this category.

Single Line Specialty Merchandisers: – Some retailers limit their offerings to

just one product line (i.e., very narrow width), and sometimes only one product
(i.e., very shallow depth). This can be seen online where a relatively small
website may sell a single product such as computer gaming software. Another
example may be a small jewellery store that only handles watches.

1.6 Retail Categories: Pricing Strategy

Retailers can be classified based on their general pricing strategy. Retailers

must decide whether their approach is to use price as a competitive advantage
or to seek competitive advantage in non-price ways.

Discount Pricing: – Discount retailers are best known for selling low priced
products that have a low profit margin (i.e., price minus cost). To make profits
these retailers look to sell in high volume. Typically discount retailers operate
with low overhead costs by vigorously controlling operational spending on such
things as real estate, design issues (e.g., store layout, website presentation),
and by offering fewer services to their customers.

Competitive Pricing: – The objective of some retailers is not to compete on

price but alternatively not to be seen as charging the highest price. These
retailers, who often operate in specialty markets, aggressively monitor the
market to insure their pricing is competitive but they do not desire to get into
price wars with discount retailers. Thus, other elements of the marketing mix
(e.g., higher quality products, nicer store setting) are used to create higher
value for which the customer will pay more.

Full Price Pricing: – Retailers targeting exclusive markets find such markets
are far less price sensitive than mass or specialty markets. In these cases the
additional value added through increased operational spending (e.g.,
expensive locations, more attractive design, more services) justify higher retail
prices. While these retailers are likely to sell in lower volume than discount or
competitive pricing retailers, the profit margins for each product are much
higher.

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 1.7 Retail Categories: Promotional Focus

Retailers generate customer interest using a variety of promotional technique,

yet some retailers rely on certain methods more than others as their principle
promotional approach.

Advertising: – Many retailers find traditional mass promotional methods of

advertising, such as through newspapers or television, continue to be their
best means for creating customer interest. Retailers selling online rely mostly
on Internet advertising as their promotional method of choice.

Direct Mail: – A particular form of advertising that many retailers use for the
bulk of their promotion is direct mail – advertising through postal mail. Using
direct mail for promotion is the primary way catalogue retailers distribute their
materials and is often utilized by smaller local companies who promo te using
postcard mailings.

Personal Selling: – Retailers selling expensive or high-end products find a

considerable amount of their promotional effort is spent in person -to-person
contact with customers. While many of these retailers use other promotional
methods, in particular advertising, the consumer-salesperson relationship is
key to persuading consumers to make purchase decisions.

1.8 Retail Categories: Distribution Method

Retailers sell in many different formats with some requiring consumers visit a
physical location while others sell to customers in a virtual space. It should be
noted that many retailers are not tied to a single distribution method but
operate using multiple methods.

Store-Based Sellers: – By far the predominant method consumers use to

obtain products is to acquire these by physically visiting retail outlets. Store
outlets can be further divided into several categories. One key characteristic
that distinguishes categories is whether retail outlets are physically connected
to one or more others stores:

Stand-Alone: – These are retail outlets that do not have other retail outlets
connected.

Strip-Shopping Centre: – A retail arrangement with two or more outlets

physically connected or that share physical resources (e.g., share parking lot).

Shopping Area: – A local center of retail operations containing many retail

outlets that may or may not be physically connected but are in close proximity
to each other such as a city shopping district.

Regional Shopping Mall: – Consists of a large self-contained shopping area

with many connected outlets.

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Non-Store Sellers: – A fast growing method used by retailers to sell products
is through methods that do not have customers physically visiting a retail
outlet. In fact, in many cases customers make their purchase from within their
own homes.

Online Sellers: – The fastest growing retail distribution method allows

consumer to purchase products via the Internet. In most cases delivery is then
handled by a third-party shipping service.

Direct Marketers: – Retailers that are principally selling via direct methods
may have a primary location that receives orders but does not host shopping
visits. Rather, orders are received via mail or phone.

Vending: – While purchasing through vending machines does require the

consumer to physically visit a location, this type of retailing is considered as
non-store retailing as the vending operations are not located at the vending
company’s place of business.

1.9 Retail Categories: Service Level

Retailers attract customers not only with desirable products and affordable
prices, but also by offering services that enhance the purchase experience.
There are at least three levels of retail service:

Self-Service: – This service level allows consumers to perform most or all of

the services associated with retail purchasing. For some consumers self -
service is considered a benefit while others may view it as an inconvenience.
Self-service can be seen with: 1) self-selection services, such as online
purchasing and vending machine purchases, and 2) self-checkout services
where the consumer may get help selecting the product but they use self -
checkout stations to process the purchase including scanning and payment.

Assorted-Service: – The majority of retailers offer some level of service to

consumers. Service includes handling the point-of-purchase transaction;
product selection assistance; arrange payment plans; offer delivery; and many
more.

Full-Service: – The full-service retailer attempts to handle nearly all aspects of

the purchase to the point where all the consumer does is select the item they
wish to purchase. Retailers that follow a full-price strategy often follow the full-
service approach as a way of adding value to a customer’s purchase.

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 Chapter 2: Retail Mix

2.1 Retail Mix

Retail marketing mix includes all the goods and services a store is able to offer
to its consumers and also all the programmed efforts of the managers that
adapt the store to market environment. This definition, over fifty years old,
underlines the fact that retail does not only represent products sale, but it is
also a complex of goods and services. Meanwhile, marketing mix efforts must
be coordinated and oriented towards market needs and opportunities .

The present retail mix has developed at the same time with retail formats. It
has been noticed that over the period of three decades that retailers were
collectively “obsessed” with a particular element of the marketing mix.

Thus, advertising has become an essential element of the mix during the ‘70s;
design dominated the ‘80s, while loyalty programs became prominent during
the ‘90s. At the beginning, the systematization of marketing instruments was
based on retail functions.

Recent literature succeeds in finding a better relationship between practical

aspects of retailers’ activities and theoretical ones. Therefore, following a
continuous evolution, marketing mix includes, depending on the details,
between three and ten specific elements.

Marketing mix includes nine elements: Location; assortment; product,

especially private labels; store layout; price; sales financing; sales promotion;
customer service; customers’ complaints management.

Several years later, ten retail marketing elements: assortment; commercial

brands; quality and quality assurance; service; price; advertising; sales
promotion; store layout and merchandising; sales force; location.

We have identifies only three elements, each with several subcomponents:

1. Assortment and private labels:-

Assortment refers to the sum of all measures designed to influence and
delineate merchandise and services offer of a retailer, the multitude of the
objects on sale – goods, services and use rights – of a retailer in a certain
season, regardless of the producer, and the composition of various articles and
groups of merchandise. The assortment, its structure and, more recently, the
array of complementary services can be tackled from both retailer’s and
customer’s sides. The assortment allows the retailer to differentiate from its
competitors and to accurately position itself within a certain retail format. From
customer’s perspective, assortment represents the opportunity to attract new
consumers and to loyalise them.

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 Regarding assortment, retailers and wholesalers must decide the products
that will be included in the assortment, the length, width and depth of the
assortment and must analyze the possible effects of including new articles and
complementary services. Retailers will also have to decide upon the number of
complementary services they should offer, of customers segments that could
be approached and how actively they should be provided.

Among the brands offered, retailers’ private brands occupy a special position
thanks to their importance for the “bind” with present customers and for
attaining the desired level of success. In fact, these are retailers’ marks placed
on various articles; either produced by them or by other parties for them and
marketed through their own stores. At the same time, retailers own both the
property and the use rights over these “private” brands. In this context, the
differentiation elements between retailer’s private labels and producer’s brands
are quality and selling price.

Generally, private brands “succeed” in adjusting better, faster and more

efficiently to consumers’ lifestyles and their social, moral and psychological
values.

2. Price

In retail, price occupies a central place, serving the development and

application of general business strategy, the achievement of very important
goals - increase of: quantitative sales; turnover; market share; profitability;
presence on certain distribution channels; gross margin; the immediate effect
on customers: improvement of customers’ perceptions of price credibility or of
price-quality ratio; and on competitors using specific instruments discounts,
temporary discounts, permanently low prices benefits, prices for special offers
or assortments.

The effects of interventions on price are rapidly perceived by both consumers

and competitors. There are several instruments that can be used by retailers to
influence consumers and their perceptions regarding service price, as it is
revealed by certain empirical researches

 Price differentiation – it implies the offer of the same good to various

consumer segments at different price levels. Differentiation can be:
quantitative (price per unit decreases as quantity purchased increases);
temporal (at the end of store hours certain prices are reduced); spatial
(because in various regions transportation costs may differ); customized
(based on age or sex – customers cards; facilities for employees or
students);
 Price aggregation – prices are established for a whole package and not
for each item. The literature distinguishes among additive bundles
(aggregate price = sum of individual prices); “super additive

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 bundles”(aggregate price > sum of individual prices); “sub additive
bundles” (aggregate price < sum of individual prices);
 Special offers are either preplanned (active special offers) or designed
to match similar competitors’ actions (passive special offers). They are
characterized by limited and short validity time, application to a few
articles and significant reduction in price. Usually, their goal is to
increase the quantity sold of the promoted product or of the
complementary articles, but also to improve store’s results, to increase
acquisitions frequency or to improve general consumers’ perceptions.
 Lowest everyday prices – operated to align a retailer’s positions to that
of its competitors;
 Lowest price guarantee – the promise that the retailer will provide
compensation in case an article can be found at a lower price
somewhere else;
 Recommended (reference) prices aim at improving retailers’ overall
image;
 Value discounts (consumers pay a lower price), moneta ry ones
(consumers purchase the product using coupons), quantitative discounts
(consumers pay regular price and receive additional items);
 Credit and payment facilities in order to increase frequency of purchases
and quantities sold;
 Software packages aid managers in the optimization of sales promotions
related decisions and acquisitions scenarios and in the calculation of
efficiency indicators;
 Databases include comparative situations regarding prices charged in
various stores;
 Online portals that allow customers to make price comparisons. The use
of these instruments allows the retailer to focus on specific strategies,
such as:
 Strategy of high, medium or low prices;
 Discount strategy – a quality service at an attractive price;
 Penetration strategy – lowest price in the launch phase of a product, in
order to immediately increase awareness;
 Market skimming strategy – a relatively high level of price in the launch
phase to test customers’ payment availability;
 Strategy of daily, seasonal or monthly price change.

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 3. Service and personnel policy
From the perspective of distribution policy, service in retail companies
includes:-
 Personal sale, carried out by store’s staff;
 Multi-channel retailing –refers to selling goods through several
retail formats that belong to the same chain or through internet or
catalogs;
 Supply and distribution logistics from central warehouse to
regional ones and stores

In retail, just like for other services, the integration of customer in service
delivery is obvious, since self-service is a fundamental characteristic of most
retail stores. Moreover, service policy contributes to the differentiation and the
creation of competitive advantage, the winning and binding of customers or to
their information and counselling. It is important to underline the optimization
of service quality through the implementation of potential goals (personnel
training; logistical infrastructure; location), of processes goals (personnel
politeness, time spent in lines) or results (store image, products utility).

In service implementation and control retailers must take into account target
segments, retail service’s content and quality (functional, technical), moment
and frequency of service delivery, distribution channels, communication
instruments and costs.

Personnel policy represents a key component of service policy, for it directly

contributes to the creation of consumer’s image of the retail store. The
personnel play an essential role in attracting and “binding” customers to the
store. In this respect, the personnel must display highly developed
communication skills, adequate training, pleasant appearance, empathy,
competence and objectivity in conversation, friendly attitude towards
customers’ concerns. From retailer’s point of view, staff loyalisation is a
priority, because loss of personnel may induce customers’ loss.

Several studies reveal increased importance of service in retail.

Complementary services increase customer satisfaction and loyalty. Also, a
more complete offer has positive effects both on retailer’s image and turnover.
Personal service and complementary services play an important part both in
food and non-food retail, clothing, do-it-yourself and home appliances.

4. Communication Policy
Communication is almost as important for goods, services and retail. For a
retailer the promotion of its private brands, of a particular location and
personal sales are the most important aspects.

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Generally speaking, communication includes all instruments and measures
used by an enterprise for its own “presentation” and that of its services to
target group. In retail, this “presentation” is oriented both towards “inside”
(employees), and “outside” (market). Typical instruments are mass-media,
prints and direct advertising, sales promotion, personal sales, public relations,
internet or fairs and exhibitions. A significant matter in accomplishing an
effective communication activity is to understand that target groups perceive
retailer’s characteristics and values differently. Therefore, it is importa nt for the
retailer to know socio-demographic characteristics of its target market and to
adjust its communication programs to the peculiarities of each segment, sub -
segment or even individual.
Depending on the market conditions or the phase in the decision process,
retailers may follow one or more communication goals, be they economic or
not. The second types of goals are classified into:
 Cognitive (attention and perception – to direct attention and
perception towards promotional articles; increase in brands or
assortment awareness);
 Affective (emotional – to activate implicit or new needs; to
strengthen emotional positioning; transmission of entertainment
value of the purchase process);
 Conative (behavioural – increase in the recommendation intention;
increase of product trials;
 Increase in the number of re-purchases and frequency of
acquisitions)
All these goals serve both to influence consumers’ decisions and to develop
loyalty relationships. The implementation of communication goals is carried out
with the aid of communication instruments and of their peculiarities.
TV advertising creates the fastest emotional effect upon consumers thanks to
simultaneous use of images, sounds and texts with ample multi-sensitive
effects that activate memories and feelings induce states of fact or increase
the intensity of perception or of nostalgia Cinema and radio advertising have a
more modest impact because of the relatively narrow groups that utilize these
communication media. Radio is however suitable for rapid increase in retailer
or brand awareness. Magazines and newspapers ads can approach certain
target consumer segments, their impact being both regional and national
Public relations require interrelation between retailer and its public (customers,
suppliers, investors, institutions, organizations, and authorities), its
stakeholders or employees. Public relations through webpage development
and update, publication of reports or interviews with company’s decision
makers, event organization (press conferences, seminars, lectures,
congresses or open doors events, fairs or exhibitions), relationship
maintenance with opinion leaders and multipliers, with sponsors and
journalists, reduction in the impact of negative news related to scandals,
accidents, cases of expired or suspicious or nonconforming products

18
create and delineate retailer’s image among its public.
Direct communication does not only imply preservation of relationships with
existing customers, but also the contact and winning of new ones with the aim
of “binding” them to the retailer. Direct communication includes mailing of
brochures, prospects or catalogs, telephone or e-mail marketing. The basis for
direct communication is represented by the existence of databases with
information on customers – the so-called “Database Marketing”.
Fairs and exhibitions are essential instruments for retail as well because they
facilitate in an organized environment the exchange of merchandise (goods
and services) among producers, distributors and consumers, representing thus
ancillary instruments of retail. Retailers may organize universal fairs (includes
industrial, manufacturer or agricultural exhibitors), sample fairs (where
contracts are signed based on samples, while products are later remitted by
the producer) or exhibitions (present a representative offer for a certain
field of activity and informs upon sales promotions). Among communication
instruments, the most modern ones are “ambient media”, “ambush media”,
“keyword advertising”, viral effects or “guerrilla marketing”

5. In-Store-Management
In-store management may either be included in the communication policy or
presented individually. It represents the equivalent of physical evidences from
service marketing. Physical evidences in retail include the interior space of the
store, the layout of shelves and gondolas, product merchandising and opening
hours. Building and interior standardization, space and gondolas design,
systematization of decorations, pleasant sound, adequate lighting, use of fine
scents and warm colours contribute essentially not only to the creation of a
pleasant shopping atmosphere, the conveyance of an exciting shopping
experience and the formation of a safe and agreeable environment for
shopping or recreation, but also to the crystallization of retailer’s image and
location among its public, to the improvement in its efficiency and chances of
rapid development and to the increase in customers’ preference towards the
retailer. Ambiance policy contributes, definitely, through emotions conveyed, to
retailer’s strategic differentiation.
Provision of pleasant shopping atmosphere and experience seem to represent
the most important goals of this policy because consumers’ satisfaction is
usually related to superior turnover / sales area, increase in: number of
visitors, impulsive acquisitions, time spent in the store, loyalty of consumers,
accessibility of purchases, retailer’s image differentiation, consolidation of
consumer’s preference for the store and optimization of consumers’ visits
frequency.
Transmission of shopping excitement, of new and pleasure is carried out by
assortment, communication, and service and in-store management. Attractive
packaging, unique design or billboards that stir consumers’ emotions in order

19
to increase sales represent subtle means of influence and reach of economic
indicators. In-store management involves one or more of the following:-
 Division of store surface in areas for different activities: merchandise
display, counselling (quiet space outside noisy area), circulation (stairs,
aisles), the rest(cash registers, dressing rooms);
 Placement of gondolas and aisles in order to fluidize flow of customers;
 Logical organization of merchandise and articles on gondolas and shelves
to maximize visibility, to facilitate access and to allow creation of synergies
and positive effects;
 Presentation of articles according to their utility, satisfied need, source,
level of gondolas;
 Use of personal service departments;
 Visual communication and its psychological effects: lighting of the sales
area; mix of colors and their dynamic (yellow – sympathy, joy; red –
stimulation; green – silence; blue – relaxation); use of decorations;
 Acoustic communication: background music; store’s radio (for promotions,
special offers and announcements);
 Use of smells (fresh bread), perfumes (combinations from drinks,
detergents, fruits departments), breeze (in the dairy department) and
temperature (cold in meat or fruits departments, warm in recreation areas);
 Competent, clean and informative design of the windows in order to convey
pleasant feelings;
 Informative screens and kiosks, price checks, order terminals, stands for
film developing, computers with internet access and with various software.

In-store-layout may be regarded from consumers’ point of view, who expects to

do the shopping within a reasonable time period, without having to search for a
long period of time the goods they need. In the cases they want a great
shopping experience, the ambience should be completely different from that of
competitors, and it should excite and please customers, and be in accordance
with their lifestyles.

6. Location

Just like service or loyalty policy, location derives from physical evidences and
from the integration of extern factor into service delivery. The store represents
the place where consumers interrelate with the retailer. At the same time,
location is a component of distribution policy, representing the geographic
place where the retailer utilizes its resources in order to deliver the service to
its customers.

In most countries it may be noticed a change in time of retailers’ location.

Thus, if initially retail was concentrated in the centre of localities and
neighborhoods, later on peripheries have become more important. The
“reactivation” of central areas within the cities has been possible thanks to the

20
concentration there of public and service companies. Lately we can talk about
the repositioning of retail in shopping centers and areas.

Retail location is primarily determined by their format. Proximity units,

specialized stores and discounters can usually be found in dense traffic areas,
close to residential areas or to public institutions (schools, hospitals, and
banks), agencies and service companies. Supermarkets are also found in
dense traffic or populated areas, but usually are accessible by car.
Hypermarkets, cash & carry, do-it-yourself units are built at the periphery or
outside localities, being accessible only by car or public means of
transportation.

Store location’s selection depends on:-

 Distance to: households; format of competitors (hypermarkets for a

supermarket); assortment of competitors (shopping centers, specialized
stores);areas with dense traffic;
 Existing infrastructure (car access; public transportation; existence of
other institutions in the area);
 Demographic factors (population’s distribution by sex, age groups,
income; density and volume of population; nationalities; number of
mono-, bi- or multiparental families);
 Economic factors (population income; propensity to economize;
purchasing power; propensity to consume; number of people that live in
that area and that of the people that work there);
 Psychological and social factors (lifestyles; consume habits; frequency
of acquisitions and their size; mentality);
 Intensity of competition in the area (number and size of retail units; their
turnover; degree of competitors’ specialization; image and ancillary
services provided);
 Objective evaluation (of location; expansion opportunities or of
improving the location; value of the location; trade area);
 Costs determined by the location (supply and logistics costs; rents;
repairs and maintenance; costs with energy; personnel costs; taxes and
dues; necessity of parking’s or passageways);
 Disturbing factors (legislation; noise, odors, climate).

In choosing optimal location for a retail unit, economic theory offers several
possible approaches, such as: the method of concentric circles around a
potential location; the method of temporal distance (minutes by car or on foot,
or kilometers); Reilly’s gravitational model and its developments in Huff’s
model; STORELOC model; Checklist model; regression models.

21
 7. Customer Loyalty

The policy of customers’ loyalization, deducted from the integration of the

external factor into the service delivered, reveals the present loyalization
methods of stores. Loyal customers may through the combined interaction of
the offered assortment, of private brands, of store’s atmosphere, of the
competent and friendly personnel, but also through the store itself and its
location. Only to the extent the retailer will stir its customers’ interest through
its entire service and will convince them of the increased value it can provide,
it will succeed in attracting them. Fulfilling customers’ expectations and
underlining the various forms of utility (functional– deducted from the basic
function of the articles; emotional – positive feelings inculcated to the
possessors; social – prestige) can strengthen the business relationship,
favoring repurchasing, increase of visit frequency and amount of money spent
in the store, and, in the end customers’ loyalty towards the retailer.

The starting point in creating loyalty is the satisfaction of consumer’s

expectations. In fact, satisfaction can be considered a complex process of
comparisons made by consumers at the time of acquisition and the desires
related to this. Both the perception of purchase and the desires and
expectations differ from one consumer to the other, being influenced by
lifestyle, income, education and other socio-economic variables.

If consumers’ expectations are exceeded, its satisfaction will be increased,

with a positive impact on the sales: the clients return and recommend the store
to their friends and acquaintances. Not being able to fulfill the expectations will
have a negative, much stronger than in the first case, effect. The retailer will
face complaints, legal actions and dissemination of negative information about
its business. In order to satisfy its customer’s retailers must take into account
the following three aspects

 Fundamental demands: customers expect the personnel to be friendly,

eager to help and competent at all times. Not being able to fulfill these
expectations will easily end the business relationship;
 Achieving satisfaction: customers expect that all products and brands
are properly labeled, that all prices are correct and not too different
from those of competitors. If customers find another retailer that offers
the same products at much lower prices, they will feel betrayed. Good
service also means short queues at the cash registers;
 Enthusiasm: customers will feel important if rewarded with presents or
discounts, if they are the 100.000th, the 1.000.000th, etc. customers.
Even though the “satisfaction” concept seems to be easy to be
perceived, it describes a phenomenon that must not be overlooked.
Satisfied customers will accept the retailer more easily and will visit it
more often than those that are unsatisfied. Therefore, customer’s

22
 satisfaction and loyalty are interconnected phenomena, and retailers
must be aware of that. Loyalty programs are classified by the literature
taking into account :
 Level of cooperation between the retailer and producer – isolated
loyalty programs (carried out by only one producer or retailer) versus
collaboration loyalty programs (collaboration between several
companies);
 Customers’ expected value – loyalty programs that focus on one side on
the functional or economic component, and, on the other side on the
emotional, social or service component;

Among the relationship marketing instruments the most representative are

cards and clients clubs. They contribute, together with bonus points programs,
complaints management, customers’ magazines and brochures to long-term
relationship strengthening. Clients cards, first introduced at the beginning of
the last century in the US and only in the 50’s in Europe have five functions:
identify its possessor; remind of the retailer; prestige (sense of belonging) –
the possessor can identify with a group of people; finance – the possessor
enjoys several facilities; marketing – the card can offer several ancillary
advantages (free parking, etc.). Card holders “earn” points proportional with
the amount of money spent or as a percentage of the total value of
acquisitions, as a progressive accumulation or in stages.

Market and customers concentration, together with the necessity of reciprocal

exchange of information with the goal of approaching a large number of
customers has made possible the foundation of partnerships between retailers
and of associations. Thus, acquisitions made at any of the partners will
generate points that are cumulated on one card, and which can be spent at
any of them. According to recent studies, the launch of a loyalty program by a
retailer using cards is viable if there are at least eight locations of the store.

Another trend in loyalty programs is that of co-branded debit and credit cards
(partnership with a bank or credit cooperative). In the context of the financial
crisis, the profitability and efficiency of this initiative is more carefully analyzed,
considering the credit conditions, interest rates and consumers’ ability of
reimbursement.

Clients clubs are utilized by retailers in order to “bind” clients tighter to the
company. They represent associations sustained, initiated and organized by
one or more enterprises, offering its members several, supplementary
advantages.

Complaints management, as an ancillary service of the retailer, provides it the

opportunity to improve its operations and to implement its general strategy.
Correctly processed, the ideas, observations and suggestions from the

23
customers can contribute not only to improve unit’s image among its target
market, but also to increase satisfaction and trust and to positively influence
their loyalty. Other instruments that create loyalty among consumers and that
can be used by retailers are: direct marketing, discount coupons and several
computer programs that can predict consumers’ demands or optimize clients’
management depending on their acquisitions.

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 Chapter 3: Retail in India

3.1 Retail in India - The Past, Present and Future

Before the decade of eighties, India with hundreds of towns and cities was a
nation striving for development. The evolution was being witnessed at various
levels and the people of India were learning to play different roles as
businessmen and consumers.

Retail-which literally means to put on the market, is a very important aspect of

every city. Without a well-organized retail industry we would not have our
necessities and luxuries fulfilled. Be it our daily groceries or fashion
accessories and everything in between, retail industry brings us the blissful
experience of shopping.

Figure 3.1.1Factors affecting Retail in India

Though organized retailing industry began much earlier in the developed

nations, India had not actively participated. However with its vast expanse and
young population, India in the 21st century emerges as a highly potential retail
market. The journey of retailing in India has been riveting and the future
promises further growth. Here is a complete picture deciphering the past,
present and future trends of Indian Retail Market.

Retail in India - Past

Before the decade of eighties, India with hundreds of towns and cities was a
nation striving for development. The evolution was being witnessed at various
levels and the people of the nation were learning to play different roles as
businessmen and consumers. The foundation for a strong economy were being
laid, youth were beckoning new awareness in all spheres. And this brought in

25
an opportunity for retail industry to flourish. First in the metros and major cities
later to impact sub urban and rural market as well.

Retailing in India at this stage was completely unorganized and it thrived as

separate entities operated by small and medium entrepreneurs in their own
territories. There was lack of international exposure and only a few Indian
companies explored the retail platform on a larger scale. From overse as only
companies like Levi's, Pepe, Marks and Spencer etc. had entered targeting
upper middle and rich classes of Indians. However as more than 50 %
population was formed by lower and lower middle class people, the market was
not completely captured. This was later realized by brands like Big Bazaar and
Pantaloons who made their products and services accessible to all classes of
people and today the success of these brands proves the potential of Indian
retail market.

A great shift that ushered in the Indian Retail Revolution was the eruption of
Malls across all regional markets. Now at its peak, the mall culture actually
brought in the organized format for Retailing in India which was absent earlier.
Though malls were also initially planned for the higher strata, they successfully
adapted to cater to the larger population of India. And it no wonder, today
Malls are changing the way common Indians have their shopping experience.
However there is still great scope for enhancing Indian mall culture as other
than ambience and branding many other aspects of Retail Service remains to
be developed on international standards.

To your surprise there was not a single mall in India a decade before and just
a few years ago only a handful of them were striving, today there are more
than 50 malls across different cities and 2 years from now around 500 malls
are predicted to come up.

Indeed this shows a very promising trend ahead, however before taking a leap
into the future of Retail in India, let's see what the Indian retail Industry is
currently occupied with.

Retail in India - Present

At present the Retail industry in India is accelerating. Though India is still not
at an equal pace with other Asian counterparts, Indian is geared to become a
major player in the Retail Market. The fact that most of the developed nations
are saturated and the developing ones still not prepared, India secures a great
position in the international market. Also with a highly diverse demography,
India provides immense scope for companies brining in different products
targeting different consumers.

The Indian retail sector is highly fragmented with about 15 million retailers. Out
of the large number of total retail outlets in the country, majority of them relate

26
to the food items. Since 1990s, big industrial houses like Rahejas, Piramals,
Tatas, etc have started entering the retail industry. Besides, several Indian and
foreign companies have been franchising for establishing exclusive outlets for
their brands, both within the country and overseas. For instance, 'Bharati
Group' had entered into a joint venture with the world's largest retail chain the
'Wal-Mart'.

As a result, the Indian retail sector has been undergoing a rapid transformation
in the past few years. The traditional formats of kirana stores, hawkers,
grocers, etc are being gradually taken over by the modern formats of
department stores, discount stores, malls, supermarkets, convenience stores,
fast food outlets, specialty stores, warehouse retailers, hypermarkets, etc. For
example, Pantaloon started the 'Big Bazaar' discount stores in 2002; Reliance
opened its first supermarket named 'Reliance Fresh' outlet in Hyderabad and
has since fanned out to several States; Subhiksha outlets have been fast
spreading across the nation; etc. Thus, the current face of Indian retail
comprising the unorganised small and medium retailers is slowly changing into
a more organised form of retailing.

According to the Global Retail Development Index, India is positioned as the

foremost destination for Retail investment and business development. The
factor that is presently playing a significant role here is the fact that a large
section of Indian population is in the age group of 20-34 with a considerably
high purchasing power; this has caused the increase in the demand in the
urban market resulting in consistent growth in the Retail business.

And though the metros and other tier 1 cities continue to sustain Retail growth,
the buzz has now shifted from these great cities to lesser known ones. As the
spending power is no longer limited to metros, every tier 2 city in the country
has good market for almost every product or service. Due to this, tier 2 cities
like Chandigarh, Coimbatore, Pune, Kolkatta, Ahmedabad, Baroda,
Hyderabad, Cochin, Nagpur, Indore, Trivandrum etc. provide a good platform
for a brand to enter Indian market.

However there are a few precautions for every brand that explores Indian
market. As Indian consumers are very curious and have a broad perspective,
they respond well to a new product or concept and there are very fair chances
of a brand surviving well, but every Indian consumer be it an urbanite or a
small town dweller needs a feeling of value for money. Although labeled as
tight fisted, Indian consumers are great spenders once they realize that they
are getting value for their money. Also new product /service concepts from the
western world are better adopted first by the urban Indians, the smaller
markets respond well to the need based retailing rather than luxury concepts.

27
As the Indian retailing is getting more and more organized various retail
formats are emerging to capture the potential of the market.

 Mega Malls
 Multiplexes
 Large and small supermarkets
 Hypermarkets

Departmental stores are a few formats which flourishing in the both big and
small regional markets

As the major cities have made the present retail scenario pleasant, the future
of the Indian Retailing industry lies in the rural regions. Catering to these
consumers will bring tremendous business to brands from every sector.
However as the market expands companies entering India will have to be more
cautious with their strategic plans. To tap into the psyche of consumers with
different likes and dislikes and differing budgets a company has to be well
prepared and highly flexible with their product and services. In this regard
focusing on developing each market separately can save a brand from many
troubles.

Retail in India - The Future

According to a study the size of the Indian Retail market is currently estimated
at Rs. 704 crores which accounts for a meagre 3 % of the total retail market.
As the market becomes more and more organized the Indian retail industry will
gain greater worth. The Retail sector in the small towns and cities will increase
by 50 to 60 % pertaining to easy and inexpensive availability of land and
demand among consumers.

Growth in India Real estate sector is also complementing the Retail sector and
thus it becomes a strong feature for the future trend. Over a period of next 4
years there will be a retail space demand of 40 million sq. ft. However with
growing real estate sector space constraint will not be there to meet this
demand. The growth in the retail sector is also caused by the development of
retail specific properties like malls and multiplexes.

According to a report, from the year 2010 to 2012 the retail sales are growing
at a rate of 8.3% per annum. With this the organized retail which currently has
only 5% of the total market share will acquire 15-20 % of the market share by
the year 2014.

28
Factors that are playing a role in fuelling the bright future of the Indian Retail
are as follows:

 The income of an average Indian is increasing and thus there is a

proportional increase in the purchasing power.
 The infrastructure is improving greatly in all regions is benefiting the
market.
 Indian economy and its policies are also becoming more and more
liberal making way for a wide range of companies to enter Indian market.
 Indian population has learnt to become a good consumer and all
national and international brands are benefiting with this new
awareness.
 Another great factor is the internet revolution, which is allowing foreign
brands to understand Indian consumers and influence them before
entering the market. Due to the reach of media in the remotest o f the
markets, consumers are now aware of the global products and it helps
brands to build themselves faster in a new region

However despite these factors contributing to the growth of Indian retail

Industry, there are a few challenges that the industry faces which need to be
dealt with in order to realize the complete scope of growth in Indian market.

Foreign direct investment is allowed only 51% in retail sector, which can be a
concern for many brands. But Franchise agreements circumvent this problem.
Along with this regulations and local laws and real estate purchase restrictions
bring up challenges. Other than this lack of integrated supply chain and
management and lack of trained workforce and flux of the market in terms of
price and product choice also need to be eliminated.

Despite these challenges many international brands are thriving in the Indian
market by finding solutions around these challenges. A company that plans to
enter Indian market at this time can definitely look forward to great busines s if
it analyses and puts efforts on all parameters.

Also, India is one of the most attractive markets for retail investment. Many
national and global players have been investing in the retail segment and have
ambitious plans for further expansion. The vast middle class with rising
purchasing power are attracting global retail giants into the almost untapped
retail industry. Some of the international players already present in the Indian
market include fast food chains like McDonalds and Pizza Huts; Dominos ;
Levis; Lee; Nike; Adidas; Benetton; Sony; Sharp; Kodak; etc.

The investment opportunities in the domestic retail industry lay in most of the
product categories particularly, food and grocery (the largest category); home
improvement and consumer durables; apparel and eating out; supply chain
infrastructure (cold chain and logistics); etc. India also has significant potential

29
to emerge as a sourcing base for a wide variety of goods for international retail
companies.

And with Good Planning, Timely Implementation and a media campaign that
touches Indian consumers any brand can go far ahead in the Indian Retail
Revolution.

Advantages of conventional and modern organised retail reforms: -

 Conventional Modern Organized

 Large Bargaining Power Low operating cost and overheads
 Proximity to consumers Range and variety of goods
 Long operating hours, strong customer relations, convenience and
hygiene.
 Long operating hours, quality assurance (brand related and durability).

30
 Chapter 4: FDI in Retail

4.1 Indian Retail: FDI -The Implications

Indian retail industry is one of the sunrise sectors with huge growth potential.
According to the Investment Commission of India, the retail sector is expected
to grow almost three times its current levels to $660 billion by 2015. However,
in spite of the recent developments in retailing and its immense contribution to
the economy, retailing continues to be the least evolved industries and the
growth of organised retailing in India has been much slower as compared to
rest of the world. Undoubtedly, this dismal situation of the retail sector, despite
the on-going wave of incessant liberalization and globalization stems from the
absence of an FDI encouraging policy in the Indian retail sector. Moreover,
with the latest move of the government to allow FDI in the multiband retailing
sector, we have analysed the effects of these changes on farmers and agri-
food sector. The findings of the study point out that FDI in retail wo uld
undoubtedly enable India to integrate its economy with that of the global
economy. Thus, as a matter of fact FDI in the buzzing Indian retail sector
should not just be freely allowed but should be significantly encouraged.

Retailing in India is one of the pillars of its economy and accounts for 14 to 15
percent of its GDP.The Indian retail market is estimated to be US$ 500 billion
and one of the top five retail markets in the world by economic value. India is
one of the fastest growing retail markets in the world, with 1.2 billion people.

As of 2013, India's retailing industry was essentially owner manned small

shops. In 2010, larger format convenience stores and supermarkets accounted
for about 4 percent of the industry, and these were present only in large urban
centres. India's retail and logistics industry employs about 40 million India ns
(3.3% of Indian population).

Until 2011, Indian central government denied foreign direct investment (FDI) in
multi-brand retail, forbidding foreign groups from any ownership in
supermarkets, convenience stores or any retail outlets. Even single -brand
retail was limited to 51% ownership and a bureaucratic process.

In November 2011, India's central government announced retail reforms for

both multi-brand stores and single-brand stores. These market reforms paved
the way for retail innovation and competition with multi-brand retailers such as
Walmart, Carrefour and Tesco, as well single brand majors such as IKEA,
Nike, and Apple. The announcement sparked intense activism, both in
opposition and in support of the reforms. In December 2011, under pressure
from the opposition, Indian government placed the retail reforms on hold till it
reaches a consensus.

31
In January 2012, India approved reforms for single-brand stores welcoming
anyone in the world to innovate in Indian retail market with 100% ownership,
but imposed the requirement that the single brand retailer source 30 percent of
its goods from India. Indian government continues the hold on retail reforms for
multi-brand stores.

In June 2012, IKEA announced it had applied for permission to invest $1.9
billion in India and set up 25 retail stores. An analyst from Fitch Group stated
that the 30 percent requirement was likely to significantly delay if not prevent
most single brand majors from Europe, USA and Japan from opening stores
and creating associated jobs in India.

On 14 September 2012, the government of India announced the opening of

FDI in multi-brand retail, subject to approvals by individual states. This
decision was welcomed by economists and the markets, but caused protests
and an upheaval in India's central government's political coalition structure. On
20 September 2012, the Government of India formally notified the FDI reforms
for single and multi-brand retail, thereby making it effective under Indian law.

On 7 December 2012, the Federal Government of India allowed 51% FDI in

multi-brand retail in India. The government managed to get the approval of
multi-brand retail in the parliament despite heavy uproar from the opposition
(the NDA and leftist parties). Some states will allow foreign supermarkets like
Walmart, Tesco and Carrefour to open while other states will not.

Most Countries of the World which embarked on the road to economic

development had to depend on foreign capital to some extent. But until the
early 1990s India’s approach towards foreign capital as an instrument of
growth and development in an overall sense was rigid, restrictive and
selective. Things, however, changed with the Industrial Policy 1991.Coming on
the heels of the macro –economic and balance of payment crisis of late 1980s,
it ushered in a paradigm shift in the Indian economy and over bent to cajole
foreign capital to come to India. The beginning made by the Industrial Policy
1991 in the direction of inviting foreign capital has increasingly been gaining
momentum with new sectors being made eligible, with almost each subsequent
year, for foreign capital.

4.2 Foreign Direct Investment (FDI) in India

The most important channel through which foreign capital flows into the
country is Foreign Direct Investment (FDI). FDI as defined in Dictionary of
Economics (Graham Bannock et.al) is “investment in a foreign country through
the acquisition of a local company or the establishment there of an operation
on a new (Greenfield) site. International Monetary Organization (IMF) and
Organization for Economic Cooperation and Development (OECD) define FDI
as a category of cross border investment made by a resident in one economy

32
(the direct investor) with the objective of establishing a ‘lasting interest’ in an
enterprise (the direct investment enterprise) that is resident in an economy
other than that of the direct investor. The motive of the direct investor is a
strategic long term relationship with the direct investment enterprise to ensure
significant degree of influence in the management of the direct investment
enterprise .Besides, International Bank for Reconstruction and Development
(IBRD) and United Nations Conference on Trade and Development (UNCTAD)
also provide definition of Foreign Direct Investment. To put in simple words,
FDI refers to capital inflows from abroad that is invested in or to enhance the
production capacity of the economy. It is preferred over other source of foreign
capital because it is non-volatile, non-debt creating and results in economic
development, modernization and employment generation in the economy.

Foreign Direct Investment under the Industrial Policy 1991 and thereafter
under different Foreign Trade Policies is being allowed in different sectors of
the economy in different proportion under either the Government route or
Automatic Route. In Retailing, presently 51 per cent FDI is allowed in single
brand retail through the Government Approval route while 100 per cent FDI is
allowed in the cash-and-carry (wholesale) formats under the Automatic route.
Under the Government Approval route, proposal for FDI in ‘Single Brand
Product Retailing’ are received in the Department of Industrial Policy and
Promotion, Ministry of Commerce & Industry. Automatic route dispenses with
the need of multiple approvals from Government and/or regulatory agencies
(Government of India or the RBI). Investors are required only to notify the
concerned Regional offices of RBI within 30 days of receipt of inward
remittances and file required documents with that office within 30 days of the
issue of shares to foreign investors.

The legal regimes that controls FDI in India and to that extent FDI in retailing
includes Press Notes by Department of Industrial Policy and Promotion,
Foreign Exchange Management Act 1999, Guidelines of Reserve Bank of
India(RBI) and Security and Exchange Board of India, besides, of course, the
Constitution of India.

India’s large and ever growing population coupled with a paucity of profitable
economic opportunities make “labor intensive” activities like Agriculture and
Retailing a major source of subsistence for the teeming millions especially the
poor unskilled labor, superfluous labor and the educated unemployed.
Therefore, any change that tend to disturb the existing configuration of these
two sectors have a bearing on the lives of millions of these people and raises
sharp public outcry and to that extent FDI in Agriculture and Retailing has
always been a contentious issue. Of late, the Government of India has
expressed its desire to bring the Multi-Brand retailing within the ambit of FDI,
and in the process has put in train a debate on its possible outcome. This short

33
paper proposes to examine the conflicting viewpoints of this debate so as to
arrive at a balanced conclusion.

Retailing in India as also elsewhere in the world is divided into organized and
unorganized retailing. Organized retailing refers to trade activities undertaken
by the licensed retailers i.e., those who are registered for sales tax, income tax
etc. These include the corporate backed hypermarket, retail chains and also
the privately owned large retail business. Unorganized retailing, on the other
hand, refers to traditional format of low cost retailing, for example the corner
store (kirana i.e. grocery shops),owner manned general stores, Cigarett e
shops, convenience store, hand cart, pavement vendor etc. Unorganized
retailing is the most prolific and visible form of retailing in India while the
organized retailing constitutes only a very small percentage (4-5%). The
reasons as to why Indian retailing is so fragmented or unorganized in nature
lies in her entrenched poverty and the fact that a large number of educated
unemployed and superfluous labor takes refuge in retailing in the face of
joblessness and glaring poverty. Retailing in unorganized se ctor is thus not a
profit oriented vocation but a mere source of livelihood. Naturally, the capital
investment is very low and the infrastructure is rudimentary. It is estimated that
less than 4% of Indian retailers have shops larger than 500 square feet. Given
this rickety state of Indian unorganized retailing, there are serious
apprehensions that the flow of organized foreign capital with its associated
baggage of humungous infrastructure, bulging financial power professional
managerial staffs etc, would sound the death knell for the Indian retailing
industry. As against most Indian retailers’ less than 500 square feet premises,
the average size of a store of Wall-mart (American Retailing Giant) is 85000
square feet and has an average annual turnover of $51 million as opposed to
an average Indian retailer’s paltry turnover of Rs.186, 000. Further, it is feared
that the international retailing giants will resort to predatory pricing to acquire
monopolies. These retailing giants with their sprawling business cutting across
different continents and deep pockets will be able to sustain loss till their
competitors are wiped out.

As has been mentioned earlier retailing “disguises” the abysmal nature of

unemployment in the country. Indian agriculture has long been a source of
livelihood for the teeming millions of the country (provides employment to more
than 50% of India’s labor force) so much so that it is massively over-crowded
now. Besides, during the lean season even the productive farmers find
themselves unemployed. Although the manufacturing is a labor absorbing
sector, its true potential has not been harnessed as yet and it has been
stagnating since the tenth five year plan. Retailing helps in absorbing these
shocks providing safety-net and opportunities to the superfluous labor to eke
out a living where all other sectors have not been able to. Critics fear that the
inflow of FDI in retailing will restrict the labor absorbing capacity of the retailing

34
sector since the international retailing giants employ labor saving machinery
and knowhow both to add value to their service as well as to enhance their
profit. And given the fact that the manufacturing is not in a vibrating state to
absorb those who are displaced from the retailing by the advent of FDI, the
poor and the unemployed will find the going very difficult for them. There will
be a hike in the rate of both unemployment and underemployment.

It has also been said that the domestic organized retailing is underdeveloped
and in a nascent stage. Therefore, it is important that the domestic retailing
sector is allowed to grow and consolidate first before the sector is opened to
FDI. FDI in retailing may also widen the rural -urban divide in the sense that
most of the retailing centers would be set up in the citie s where both the
density of population and level of income of the people are high. These retail
centers would also attract cheap labor from the rural areas and thereby deplete
the hinterland of its workforce. In addition, organized retailing with FDI would
result in bevy of buildings and multiplexes. Unless their constructions are
regulated, they will also add to the chaotic muddle of urbanscape.

After having expatiated on the possible pitfalls of allowing FDI in retailing, it is

also necessary to understand the distinction between appearance and reality.
Much of the prognostication of gloom is based on a theoretical understanding
of the situation. In reality, the research conducted by the Indian Council for
Research on International Economic Relations (ICRIER) has revealed that
there is no evidence of overall decline in the employment of the Unorganized
retailing sector as a result of the advent of FDI in organized retailing and that
the rate of closure of small shops for the same reason is very minimal.

One needs to be holistic in his assessment of the outcome of introducing FDI

in Retailing. One of the reasons as to why a vast swath of India’s population is
suffering poverty and depravation is that Agricultural sector of the country has
not developed appropriately, and the main stumbling block in this regard has
been that of inadequate logistics and direct access for farmers to vast markets.
FDI in retailing can to a large extent ameliorate these deficiencies. If FDI in
front end retailing is allowed, the international retailing giants will be motivated
to invest capital, bring in knowhow and global capacity on a colossal scale
and as a result a world class back end infrastructure would be built the like of
which may take the government years to make (Though FDI is permitted in
backend infrastructure to the extent of 100% through the automatic route, in
the absence of FDI in retailing, investment in backend infrastructure has not
been so forthcoming) . The foremost beneficiary of such a development would
be the farmers, especially those engaged in Horticulture. Though India is the
second largest producer of fruits and vegetables, lack of storage facilities
cause heavy losses to farmers. Availability of adequate post harvest and cold
chain infrastructure would enable the farmers to avoid wastage and distress
sales. The retailers would engage the farmers directly through the contract

35
farming programmes as also resort to direct buying from the farmers which will
dilute the role of profit siphoning intermediaries, enhance the income of the
farmers and give them direct access to markets. The resultant rural prosperity
may open up market for other industrial goods and help bring about a more
balanced regional development.

The Medium and Small Enterprise that plays a critical role in country’s overall
manufacturing scenario has lagged and suffered due to lack of branding and
avenues to reach out to the vast world market. The international retailers can
buy from them not only for the domestic market but for their stores outside the
country also and in the process provide the small and medium enterprises of
the country a brand name and a window to the international market. In fact, it
is estimated that FDI in retailing can significantly increase export from the
country. If the domestic organized retailers are allowed to grow to the
exclusion of FDI, it may bring about other above mentioned developments but
not increase the exports.FDI can, in fact, spur competition among the
organized retailers. The ultimate beneficiary of these competitions would be
the consumers. An example of how the consumer benefit from the competition
is the automobile industry in India. The intense competition among the
automobile industries has resulted in a situation where the consumer has been
able to purchase cars for as low a price as rupees one lakh. CRIER in its
research has found that all income groups save through organized retail
purchase, but the lower income groups save more. Thus, organized retail is
relatively more beneficial to the less well-off consumers.

A growing and mushrooming retail sector means that its contribution to GDP
would grow. It would thus help in expanding the economy, generate
employment and result in more tax income.

In the light of all that have been discussed above it can be said without any
dispute that the time for allowing FDI in Multi –Brand Retailing has come and
as Victor Hugo has said “Nothing can stop an idea whose time has come”. FDI
in Retailing started with FDI in cash and carry wholesale trading firs t permitted
in 1997 to the extent of 100% under the Government approval route and
thereafter in 2006 brought under the automatic route. In 2006 again FDI in
Single Brand Retailing was permitted to the extent of 51%. From here it is but
natural and logical that FDI would now proliferate to multi-brand retailing. But
the progression to FDI in multi-brand retailing cannot take place at the cost of
vital concerns raised in connection with this possible change by different
groups; viz, the question of adaptability of the retailers in the unorganized
sector, the question as to how the FDI in retailing can be harnessed for the
benefits of Indian agriculture and Medium and Small Enterprise and above all
how to impart into the economy a degree of resilience to withst and the
changes that would be ushered in the wake of introduction of FDI in retailing.
All these concerns have to be addressed not because the Left wing political

36
parties and the media through their campaign have necessitated such attention
but because we are constitutionally bound to do so .The Preamble of the
Constitution resolves to constitute India into a Sovereign, Socialist, Secular,
Democratic, Republic and to secure to all its citizens JUSTICE, so cial,
economic and political. EQUALITY of status and opportunity. Directive
Principles of State Policy similarly exhorts the state to establish just, equitable
and fair order. Article 39(c) states that the state should ensure that the
operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment. Though both these
features are not enforceable, the Executive and the Apex Court in particular
have time and again reiterated the sacrosanct nature of these features [
Kesavananda Bharti v.State of Kerala AIR 1973 SC1461,1973(4) SCC225;
Minerva Mills v. Union of India 1980 AIR 1789,1981 SCR(1) 2061]

Unlike FDI in single brand retailing which pertains to brand loyal and a
relatively small high income clientele, FDI in multi-brand retailing would have
direct impact on a vast spectrum of population and thus a sensitive issue. Left
alone foreign capital will seek ways through which it can only multiply itself,
and unthinking application of capital for profit, given our peculiar socio -
economic conditions, may spell doom and deepen the hiatus between the rich
and the poor. Thus the proliferation of foreign capital into multi -brand retailing
needs to be anchored in such a way that it results in a win -win situation for
India. This can be done by integrating into the rules and regulations for FDI in
multi-brand retailing certain inbuilt safety valves. For example FDI in multi –
brand retailing can be allowed in a calibrated manner with social safeguards so
that the effect of possible labor dislocation can be analyzed and policy fine
tuned accordingly. To ensure that the foreign investors make a genuine
contribution to the development of infrastructure and logistics, it can be
stipulated that a percentage of FDI should be spent towards building up of
back end infrastructure, logistics or agro processing units. One of the
justifications for introducing FDI in multi-brand retailing is to transform the
poverty stricken and stagnating rural sphere into a forward moving and
prosperous rural sphere. To actualize this goal it can be stipulated that at least
50% of the jobs in the retail outlet should be reserved for rural youth and that a
certain amount of farm produce be procured from the poor farmers. Similarly to
develop our small and medium enterprise, it can also be stipulated that a
minimum percentage of manufactured products be sourced from the SME
sector in India. Public Distribution System is still in many ways the life line of
the people living below the poverty line. To ensure that the system is not
weakened the government may reserve the right to procure a certain amount of
food grains for replenishing the buffer. The government may also put in place
an exclusive regulatory framework to protect the interest of small retailers. It
will ensure that the retailing giants do resort to predatory pricing or acquire
monopolistic tendencies. Besides, the government and RBI need to evolve

37
suitable policies to enable the retailers in the unorganized sector to expand
and improve their efficiencies

The Industrial policy 1991 had crafted a trajectory of change whereby every
sectors of Indian economy at one point of time or the other would be embraced
by liberalization, privatization and globalization. FDI in multi -brand retailing is
in that sense a steady progression of that trajectory. But the government has
by far cushioned the adverse impact of the change that has ensued in the
wake of the implementation of Industrial Policy 1991 through safety nets and
social safeguards. But the change that the movement of retailing sector into
the FDI regime would bring about will require more involved and informed
support from the government. One hopes that the government would stand up
to its responsibility, because what is at stake is the stability of the vital pillars
of the economy- retailing, agriculture, and manufacturing. In short, the socio
economic equilibrium of the entire country.

All Indian households have traditionally enjoyed the convenience of calling up

the corner grocery "kirana" store, which is all too familiar with their br and
preferences, offers credit, and applies flexible conditions for product returns
and exchange. And while mall based shopping formats are gaining popularity
in most cities today, the price-sensitive Indian shopper has reached out to
stores such as Big Bazaar mainly for the steep discounts and bulk prices.
Retail chains such as Reliance Fresh and More have reportedly closed down
operations in some of their locations, because after the initial novelty faded off,
most shoppers preferred the convenience and access offered by the local
kirana store.

So how would these Western multi-brand stores such as Wal-Mart and

Carrefour strategies their entry into the country and gain access to the average
Indian household? Wal-Mart has already entered the market through its
partnership with Bharti, and gained opportunity for some early observations.
The company's entry into China will also have brought some understanding on
catering to a large, diverse market, and perspectives on buying behaviour in
Asian households. Carrefour on the other hand has launched its wholesale
cash and carry operations in the country for professional businesses and
retailers, and will now need to focus more on understanding the individual
Indian customer.

As such, these retail giants will try to gain from some quick wins while reaching
out to the Indian consumer. For one, they will effectively harness their
expertise with cold storage technologies to lure customers with fresh and
exotic vegetables, fruits and organic produce. Secondly, they will a lso
emphasise on the access that they can create for a range of inspirational
global foods and household brands. Thirdly, by supporting domestic farmers
will try ensuring supplies of essential raw materials to them.

38
Surely, these should engage shoppers' and farmers interest–but what needs to
be seen is whether they can effectively combine these benefits, with the
familiarity, convenience and personalised shopping experiences that the local
"kirana" stores have always offered.

1: What will FDI do?

Without doubt, it will immediately save the indigenous modern retail industry
that has been built until now. What has been built until now? Between all the
modern retailers in India, they now manage to generate Rs 2 lakh crore in
revenues—a very impressive number by any reckoning and growing at a
compounded rate of 25 percent each year, according to India Retail Report
2012. But the problem is, most players in the Indian retail business just aren’t
making any money yet, and are carrying large amounts of debt, not h aving had
enough equity to fund business losses that are par for the course in the build -
up phase of retailing businesses.

Retail businesses guzzle a lot of cash for a long time and then return it
handsomely. If not carefully funded with patient capital, of the equity kind, the
investment phase can be life threatening.

Kishore Biyani, the largest, most ambitious modern Indian retailer, is a victim
of precisely this phenomenon. His business managed to generate Rs 14,000
crore in sales, but in the process incurred expensive and debilitating debt of
almost Rs 9,000 crore. Just paying off the accumulated interest was wiping out
all the profits the business was generating.

Unable to sustain the business, he was forced to sell a part of it to the

competing Aditya Birla Nuvo group, and reduce debt to a manageable amount.
However, his business still needs a lot of money to grow to get to serious
profitability.

Biyani is not alone. Foodworld, the first Indian supermarket chain, and one that
consumers loved, languished at a boutique scale by modern retail standards,
with 60 stores mostly in South India, and lost all early-mover advantages and
is now a minor player. Shoppers Stop has just 52 stores in 21 years of
operations. In contrast, Tesco, for example, has 3,054 stores in just the UK,
with revenues of £42 billion in 2011. In India, a country that is so much bigger,
all modern supermarket and hypermarket stores put together would not add up
to this number.

With the exception of those in the luxury retail business, like Louis Vuitton,
Armani or Gucci, the others follow a fairly straightforward model. You buy
cheap from suppliers because you buy large volumes. Because you buy cheap,
you can sell cheaper to consumers than traditional retailers, who are
handicapped because they are small volume players. Ten Food Bazaars, for

39
instance, would buy 200-300 times as much food and grocery than any of the
large kiranas.

This is only on the food and grocery side, and does not include fresh produce,
which hardly any kirana deals with.

The trouble is that while you build the large volumes that can help you buy
cheap, you have to keep fuelling the business with money. You need to do
everything right at the stores, including pricing (or front end as retailers call it),
in order to attract consumers and establish your brand positioning; and invest
in all the support systems needed to run the stores (the back end). It is only
when you achieve a certain scale that you pare down the cost of supplies to a
point where margins improve and profits begin to come in. Biyani had to sell
before he got to this stage.

And then there is the fact that retail is as much science as it is money. For
instance, scaling the business isn’t just about expanding across the country by
building more identical stores with identical merchandise, but about knowing
where to build a new one, when, and how to minimise risk. All of these are
lessons global retailers have figured over the years and will bring to India.

To accrue scale benefits, evolved retailers know when to scale by penetrating

existing catchments and when to scale by entering new catchments. They also
know what is the minimum number of stores they must enter a new catchment
with. They know how to tailor the merchandise mix and range to local needs
when they build new stores, without messing with the economics or the brand
proposition. They have very sophisticated analytics to decide store locations,
something we haven’t done well at all in India.

2: Who’s got the money?

The kind of patient capital that the retailing business needs is not what finds
favour with financial investors. It has to come from strategic investors.

Global retailers who’ve already wet their feet in other parts of Asia and the
Middle East are the most likely source of FDI into Indian retail. Large global
retailers include the likes of Walmart, Carrefour, Target, Metro, Ikea.
Incidentally, most of the top 10 retailers in the world are in ‘roti, kapda aur
makaan’ (food, clothing and home) categories. Only two do not participate in
the food and grocery business at all. They are Walgreen, which is into health
and beauty products; and Home Depot, which, like the name suggests, is into
products for the home, but with a Do-It-Yourself slant.

The top 10 aside, there are at least 50 smaller retailers who have built
distinctive brands and operate at varying price-quality points. They could be
inclined to consider India as well. Our guess is it could be fashion retailers like

40
H&M and Gap, home retailers like Ikea and department stores like Lott e,
durables and electronics retailer Best Buy and sports good stores.

Many are already in India—like Zara, Timberland, Marks & Spencer and Body
Shop—though they’ve still to shift into high gear despite the potential
opportunity.

Which begs the next question: Why would they be interested? The answer is
not far to find. A large, growing, consumption-driven economy, a slowing down
of growth in developed markets, a young consumer base, and a modern retail
race that has not even seriously begun yet, is a once-in-a-half-century
opportunity. And a consumer who is ready and waiting and underserved.

If we think beyond food and grocery that is served by the ubiquitous kirana
stores, we can see all the yawning gaps in the market where the consumer is
ready but the retailer is barely present.

As we gadgetise our homes, there is no deep, large national multi -brand

consumer durables retailing chain—Croma is still fledgling with 78 stores
across 15 cities.

In a country that makes 21 million babies a year, and where seven out of 10
homes have a child at home, there is no deep, large national children’s
products retailing chain or even a toys discount retailing chain. There is no
ubiquitous national pharmacy chain with store brands for all our everyday
ailments.

Do big global retailers have the deep pockets needed to invest and stay the
course?

Walmart most certainly outstrips everybody on this count; it has revenues

close to 30 percent of India’s GDP ($421 billion in 2011) and an annual profit
of $16.3 billion. But the others are very well heeled too.

Target has revenues of $67 billion and profits of $2.93 billion.

In the consumer durables category, Best Buy makes a profit of $1.3 billion.

Ikea and fashion retailer H&M are hugely profitable by modern retail standards.
Ikea makes an annual profit of around $3.85 billion on a $31 billion turnover,
and H&M makes a whopping $2.33 billion on a turnover of just $15 billion.

Between the top 20 global retailers, they had a net income of $57.7 billion on
total revenues of $1.7 trillion last year. For them, the ‘patient capital’ needed to
invest in India is hardly a bother.

Despite a slowdown in the developed world, most of the top 20 have grown
their large revenue base in the region of 3 to 9 percent in 2011. They also

41
have the stamina to correct mistakes and start over again if need be. Two
examples of this: Puma and Marks & Spencer.

Puma first entered the country in the mid-1990s through a franchise

arrangement with Carona. This did not work out and they terminated the
agreement and appointed a new franchisee Planet Sports. However, the brand
did not have control over the stores or pricing, and this arrangement too failed.

Finally, in 2006, Puma decided to enter directly, with a 51 percent stake and
with full management control. The brand carried out some very innovative
marketing initiatives, like digital marketing (Puma India went on to Facebook in
2008, a practice adopted by Puma USA later), and controlled the retail
environment. Unlike its competitors like Reebok and Nike, Puma went with a
mix of 70 percent lifestyle and 30 percent sports performance, which was
almost the reverse of its competitors. Apart from all this, Puma appointed a
local Indian management, and gave them a free hand. The result: 240 stores
and expanding, and a 44 percent growth rate over the last few years.

Marks & Spencer had a similar story. The franchisee opened small stores
(average size 3,000 sq ft) and positioned M&S as a premium brand, which led
to a disastrous performance. M&S recently entered into a JV with Reliance,
where the brand has 51 percent and management control. It repositioned itself,
in line with its global DNA, as being a value for money, staples brand. Now
M&S is growing rapidly. Stores are also being right sized at about 20,000 sq ft
each.

3: How much money can be absorbed?

Various numbers have been thrown around. Some claim retail can attract FDI
in the region of $20 billion. Then there are the more optimistic ones who
believe it could go up to as much as $50 billion.

One way to test this wishful thinking and anchor it in reality is to ask how many
consumers are out there, where FDI is permitted, with the muscle to buy from
these stores when they come in? What kinds of monies are needed to go after
this opportunity and turn in profits for investors? And how long would these
investors have to wait?

To compute these answers, we looked at nine types of retail formats that form
the pillars of modern retail. These include the cash-and-carry format that
serves small retailers as opposed to direct consumers; food- and grocery-
driven hypermarkets; home; fashion and apparel; speciality stores and so on.

In each category, we compiled a list of retailers with a presence in Asia and

the Middle East and hence would want to get into India as well.

42
Surprisingly, many were already in India either through franchises, licensee
agreements, sourcing operations and seemed familiar with the country.

We then looked at some key parameters. These included the price-quality

range at which they operate, their strategic market positioning (that is, where
in relation to the plethora of competitors do they typically peg themselves),
their brand promise, and store formats. Assuming they wouldn’t change their
DNA just to get into India, we attempted to assess who could possibly form the
consumer base for each format.

Food- and grocery-driven hypermarkets like Walmart, Carrefour etc, and

apparel driven discount retailers like Target, have the ability to target and
serve the top 60 percent of urban households by income (which would be the
Socio Economic Classes A, B and C of the five point standard industry socio -
economic classification, or SEC, system that consumer marketers in India
use).

Other mid-market players (like Bed Bath & Beyond, Victoria’s Secret, Ikea), we
believe, will be able to address only the top 33 percent of income earners
(SEC A and B).

Many of the speciality stores that hawk fashion apparel and accessories are
likely to be relevant only to the top 10 percent of all income earners (SEC A).

These assessments in place, we tried to estimate how many stores of each

kind the top 40 Indian cities could support, given the store formats typically
used. We concluded, for example, that a proposition like Ikea can at best set
up 30 stores across these 40 cities. As for hypermarkets, we reckon these 40
cities can support at least a 1,000 of them. (See graph The Foreign Investment
Inflow)

Based on these numbers, we are convinced there is an opportunity to add

another $25 billion in revenues to the $45 billion that already exists. To fulfil
the demands this opportunity presents, retailers will collectively need to invest
in the region of $12 billion, which includes infrastructure and people.

What it means is FDI in multi-brand retail will be in the region of $7 billion

because the government mandates a 51 percent cap on all such investments.
And multi-brand retail is where the money and big boys are. Then there is the
fact that there aren’t enough malls that can enable business in this format. To
build the malls, our estimate is, another $12 billion will be needed —a
significant part of which can come in through the FDI route.

If this be the ‘unserved’ market opportunity today, it would be safe to assume

the opportunity will be even more robust in the next decade. That is because in
nominal terms, the incomes of the top 30 percent in urban India will double in
about seven years.
43
If these numbers are looked at from a holistic perspective, investing $25 billion
NOW into retail and real estate gives you the muscle to reach out to a $140
billion market opportunity in the next 10 years. ($45 billion existing market +
$25 billion ‘unserved’ opportunity; doubled over the next 10 years.)

Figure 4.2.1 FDI Impact on different segments in India

4: Will all these stores get built?

In a perfect world, we’d have predicted very confidently that they would —
especially because many of the entrants have been in India for a while in some
form and are done with their learnings on the ground. But there is a big hitch to
that happening. Hitch is, there is no real estate. And without real estate, all of
these investments aren’t possible. It is ironic that consumer demand,
historically the bane of investors into India, is ready and waiting, but it is the
supply that has many roadblocks.

In our experience, building a mall takes three to four years. Conservatively,

that means it will take another five years before modern retail in urban India
can go into full throttle.

To exploit this opportunity over the next 10 years, 100 million sq ft of space is
needed. A recent Jones Lang LaSalle report says the current stock of mall
space is 62.5 million sq ft, only half of which qualifies as ‘superior g rade’. They
make the point that the inferior grade malls “are essentially ruins of hastily
commissioned projects where no retailer wants to set up store”.

44
As a result, they say, the vacancy in prime operational malls is in low single
digits! They argue that retailers, especially large format ones, have been
looking for quality space outside malls and retrofitting them. But even these
spaces are getting scarce. Several mall projects were announced around
2005 by a variety of developers. But over half have not seen the light of day.
Mall developers are realising that malls need to be treated as an asset to be
owned and enhanced to suit the retailer’s need and not something that can be
sold like other kinds of real estate. This new-found understanding is pushing
them away from projects they’ve announced in the past.

5: What about the SMEs and farmers?

What about them? FDI coming in isn’t going to make life significantly different
for most of them. Modern retailers are interested in saving on every bit of cost .
To do that, they’d much rather consolidate vendors. Because of regional
diversities and state-level differences in consumption and consumer
preferences, the supplier base for modern retail in India will be larger in
number and smaller in turnover than elsewhere; but even a large hypermarket
is likely to have no more than 2,500 vendors, and apparel producers may have
no more than 100. They, in turn, will need to benefit from economies of scale if
they are to produce at the price, and with the stringent quality parameters that
the retailer specifies.

Our estimates lead us to believe that if all the numbers of stores we talked
about earlier actually got built, studying the sourcing strategy that global
retailers have used in other countries and the number of vendors that some of
them have already registered in India, there won’t be more than 20,000 SMEs
with turnovers in the region of Rs 50 lakh to Rs 2 crore doing all the job.

An often touted argument is that Indian suppliers can be a source for the rest
of the world. The same consolidation logic would work even more acutely in
this case. Even if you assume—very unlikely, but let us assume it—that double
the number of SMEs will be a part of the modern retail journey, that’s still only
40,000 of them. In a country with 13 million SMEs, this is still a drop in the
ocean.

This model of suppliers is analogous to that in the automobile industry where

vendors and suppliers are few, but they’re large, and partners in the business.
They grow as the manufacturer grows. The vendors on their part may sub-
contract their work to smaller vendors. But it is a well-defined vendor ‘orchard’,
which yields more fruit over time, but not more trees.

Imports may or may not be a large percent of sales. But a cursory look at non -
food goods flooding India from Chinese shores compel us to believe “goods
made elsewhere and tailored for the Indian market” will happen, if operations
are cheaper and easier to manage from elsewhere in the world.

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As for farmers, it is much the same. To supply ‘everyday’ vegetables to the top
40 cities, 2 lakh hectares of vegetable farm will be needed. That is just a small
fraction of the 11 million hectares of vegetable farms India has. Two lakh
hectares of vegetables need just two lakh farmers. In the larger scheme of
things, insignificant again! There will also be large aggregators, if there is
benefit in sourcing from small farmers or suppliers, and one kind of middle man
will get replaced by another, but hopefully a less exploitative one.

Will the country’s cold chain get established and will granaries get modernised
as a result of FDI in retail? Unlikely again because each retailer will invest only
what their business needs. To use an analogy, retailers will invest in building
the last mile road to their facilities, but are unlikely to contribute to building the
nation’s road network. There are some things that the government alone can
and must do on its own or encourage through separate policies. FDI in retail
will not be the magic wand for preventing things like losses of farm produce
due to wastage or spoilage. Just for the record, FDI in cold chains was allowed
a while ago. But nothing really came of it.

6: And jobs?

Investments of $12 billion will generate direct employment of about 700,000

jobs, if you actually add up how many front-end jobs will be created to work in
the number of stores that we talked about earlier, and the back -end jobs
needed to run the business. Perhaps another 200,000 jobs in the 20,000
strong vendor community that we estimated.

The number of these jobs here will definitely grow as the turnover of the
vendor increases, but they will most likely be contract-type jobs—not
employees with full benefits, but certainly jobs with a guaranteed pay check
and regular income.

More important than the number, we feel, is the fact that a new skill category
called ‘retail jobs’ will be created, and every bit of job movement up the value
chain is welcome. What’s more, just as NREGA improved wage rates across
the board for labour in rural India by setting an inflation-indexed ‘official’ labour
rate, perhaps the birth of modern retail will improve wage rates in traditional
retail as well.

Will the small retailers, especially the kirana stores die?

The bulk of them are safe because they operate in small towns and rural India
and serve the lower social class customers as well.

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In newer settlements, there are hardly any kiranas anyway, because the new
real estate is too expensive for them. It is inevitable that some will die, and
already have, even as domestic modern retail has expanded. However, there
will be no mass murder. Many will survive, morph and specialise. And most
likely grow profitably from phone-in home delivery services, and e-commerce,
and most likely, will start managing the inventory in richer homes proactively.

7: So what does all this mean?

Despite consumer demand and global retailer readiness, there are many
reasons why the investment in modern retail will be what we would describe as
‘slow burn’. Lack of the critical ingredient of real estate is one big reason.

Then, there is the never ending political sabre-rattling around FDI; the
possibility that different states will impose different caveats; or that there will
be new conditions that make the already challenging path to profitability even
more challenging. And finally, there is the structure of consumer demand in
India, which is inimical to modern retail.

Modern retail in India is not for the faint-hearted. The economics of the retail
business in India is severely challenging because of the structure of demand
and the heterogeneity of consumer preferences. There is less money in a
given catchment area than in developed markets, because the structure of
demand in India is such that many people buy a little bit each and that adds up
to a lot. What works in retail instead is if a few people buy a lot.

This is a problem for two reasons:

 Sales per square foot

 Gross margin return on investment per square foot.

India scores poorly on both, also on account of real estate prices.

Unfortunately, solving the problem by going to far flung locations on the
outskirts of a city is not a viable option because public transport is poor and
fuel is expensive. The retailing model in America was built when gasoline was
cheap, and personal cars comprised the central nervous system of that country
for a long time. That is not the case here.

Another enemy retail faces is the heterogeneity in India. Every hundred -odd
kilometres, there are different oils, different pulses, different brands and
different water conditions, to name just a few. This makes scaling the b usiness
harder. As one retailer said, when we went from Chennai to Pune, it was like
going to another planet!

The SKUs (stock keeping units, or items for sale) needed even for just cooking
is a lot. In markets with dismal mom-and-pop stores dominating retail, the
consumer automatically runs towards the organised retailer.

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In India as we know, the so-called mom-and-pop retailer is a very savvy
businessman, and has customer relationship management skills and service
levels that are very hard to beat. If value is (benefit minus cost) as perceived
by the consumer, then creating the value advantage over the local small
retailer costs money too.

This does not mean that there is no money to be made in organised retail in
India. It just means that it takes longer, needs harder work, and is not for the
faint-hearted.

All of this will combine to dilute the actual investment to less than half of what
the market opportunity can support today.

While this may seem like an opportunity lost, it also opens up the possibi lity
that many local businessmen will take a shot at entering the fray, learning this
business with foreign partners, and we may eventually see the emergence of
entirely homegrown retailers.

The other thing that is clear is this. Over the next five to 10 years, the strong
foundations of a new industry with enormous potential will get put into place;
new skilled and semi-skilled job categories will be created; a set of new
decent-sized supplier companies will emerge; huge joint ventures will be
forged; and a model for large corporate ‘middlemen’ buying directly from
farmers and transmitting consumer preferences to them will be established.

So let’s reality-check the wild hopes and discount the alarmism, and get on
with the job of building one better thing for the future. It will not be the sure for
all ills, but it certainly is one more remedy that needs to be given its best shots.

48
Figure 4.2.2 The Foreign Investment Inflow

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 4.3. Lessons from a global perspective

Though not exclusive to India, this large "shadow" retail industry of smaller,
independent retailers has such a strong identity of its own that it is hard to find
similar examples elsewhere in the world. Perhaps the closest would be Brazil,
where the government made a concerted political decision to protect itself,
creating the ideal environment for domestic producers and retailers to work in
concert — and deliver to the local demand without dependence on external
production.

Where Brazil imposed a closed domestic focus, India is keen to open itsel f up
as a market, as both producer and consumer. This has led to retail becoming a
real battleground as big, foreign retail giants look to enter the market but find
themselves in the midst of a system that is based around a far more
fragmented retail ecosystem than they are accustomed to.

Until 2011, Indian central government denied foreign direct investment (FDI) in
multi-brand retail, forbidding foreign groups from any ownership in
supermarkets, convenience stores or any retail outlets.

On 14 September 2012, the government of India announced liberalization

allowing the opening for FDI in multi-brand retail, subject to approvals by
individual states. This decision was welcomed by economists, but caused
protests and an upheaval in India's central government's political coalition. On
Sep.20, 2012, the government of India formally notified the FDI reforms for
single- and multi-brand retail, making it effective under Indian law. These
changes have brought the gap between "organized" and "unorganized" retail to
the fore.

The main concern is how this split affects consumer spending behavior and
shopping patterns. In many cases, the organized retailers cannot get access to
goods that are freely available via unorganized retailers. A classic example is
that you cannot get a Pepsi Max in a 7-Eleven in India but can easily get one
from a vendor just over the road.

Elsewhere there is concern that the unstructured, independent retail market

damages the productivity of retail overall. A McKinsey study claimed retail
productivity in India is very low. For example, the labor productivity in Indian
retail in 2012 was just 6 percent of the productivity in the United States in
2010. This hinders a lot of investment and is often viewed as supporting an
inflated retail employment market in India (currently about 6 percent of the
Indian workforce). Training and development of labor and the development of
management skills for higher retail productivity are expected to be challenges.

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Neighbours of necessity

So, can organized and unorganized retail ever co-exist across such differences
and tensions? The simple truth is they may have to learn to get along; many
commentators point to the size and breadth of the evolving organized retail
and say that it's inevitable that it will eclipse its unorganized counterpart.
However, the fact is that this should have been well underway by now and
realistically, given the political pressures, social demographics and culture
within India, this "death of unorganized retail" is very unlikely at least in the
short to medium term.

There is, however, good reason for organized retail to enjoy the presence of
the "unorganized" alternative. The smaller shops are often very creative and
assess local requirements with unerring accuracy: a sari shop in Chennai will
carry different cuts and fabrics than one in Jaipur, but they will both be keenly
targeted to the local market. There clearly are lessons to be learned. Indeed,
the unorganized retail market may well be the best market testing facility many
organized retailers and upcoming fashion designers could wish for.

Collaboration may well be rare. There is a profound lack of trust on both sides
and no obvious third party to fill the gap. Some smaller, more collaborative
brands such as Zara may be able to explore the unorganized outlets but these
occasions will be few and far between. It is likely that for those fashion brands
that can contain the organized/unorganized tension and find favor with both,
the are huge rewards. Interestingly, Walmart has a strong track record of local
adaptation.

Indian retail is a huge potential opportunity for fashion brands and there
undoubtedly will be huge change over the coming months and years as the
new, more investment-friendly regime takes effect. But those international
brands will enter a market that is not only unique, but fraught with regional
differences, unique product requirements and customer expectations. It will not
just be a case of caveat emptor (let the buyer beware) but also, manufacturers
and retailers beware.

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4.4 Impact of organized retail on unorganized Retail (Case Study – China)

Myth: Organized global retailers eat up local retail chains including mom and
pop stores

Truth: China, which brought in global retailers like Wal-Mart in 1996, has just
about 20% of organized retail meaning the argument that unorganized retail
gets decimated, is fallacious.

1. FDI in retailing was permitted in China for the first time in 1992. Foreign
retailers were initially permitted to trade only in six Provinces and Special
Economic Zones.

Foreign ownership was initially restricted to 49%.

2. Foreign ownership restrictions have progressively been lifted and, and

following China‘s accession to WTO, effective December, 2004, there are no
equity restrictions.

3. Employment in the retail and wholesale trade increased from about 4% of

the total labour force in 1992 to about 7% in 2001. The numbers of traditional
retailers were also increased by around 30% between 1996 and 2001.

4. In 2006, the total retail sale in China amounted to USD 785 billion, of which
the share of organized retail amounted to 20%.

5. Some of the changes which have occurred in China, following the

liberalization of its retail sector, include:

 Over 600 hypermarkets were opened between 1996 and 2001

 The number of small outlets (equivalent to “kiranas‟) increased from 1.9
million to over 2.5 million.
 Employment in the retail and wholesale sectors increased from 28
million people to 54 million people from 1992 to 2000

Effect of FDI on Traditional Market in China Type No. of stores in 1996 No. of
stores in 2001

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Even as the issue of 100 per cent foreign direct investment in retail has set off
a major controversy in India, the Chinese experience offers a refreshingly
positive tale to tell.

Almost two decades after China opened up retail fully, starting with allowing 26
per cent FDI in 1992, the sector has seen rapid growth, against the backdrop
of increased market consolidation, higher production efficiency enabled by
rising investments in rural infrastructure, and booming exports made possible
by the setting up of new supply chains.

Many of these changes, according to Chinese analysts, were made possible by

the entry of foreign retail giants such as Walmart and Carrefour, who changed
the way Chinese companies managed their businesses, from farm
procurement to logistics. Yet, 20 years on, it is Chinese local retailers — and
not their foreign competitors — who dominate the retail market, with initial
fears of a foreign invasion ultimately appearing unfounded as local companies
learned quickly to out-compete their foreign rivals.

The country's biggest retail firms today are all Chinese companies — the
Shanghai Bailian group, Suning, Gome and Dashang — all have bigger sales
than Walmart in China, according to several research studies.

Walmart, which came to China in 1996 and has since opened more than 350
stores, has seen its market share fall from 8 per cent to 5.5 per cent in the past
three years, according to the China Market Research Group.

Shi Yongheng, a professor from the School of Economics and Management at

Tsinghua University who has studied China's retail sector, told that the
success of China's local retailers was enabled by the government controlling
the speed of the ‘gradual' opening up process, which gave local retailers
enough time to adapt.

Foreign companies were allowed to hold 51 per cent majority ownership (which
India has now decided to grant them) only 12 years after the sector was
opened, first allowing 26 per cent foreign equity. Initially, China also only
allowed foreign retailers to open in select metropolises, such as Beijing,
Shanghai and Shenzhen, and, moreover, only in certain districts in those
cities. In Beijing and Shanghai, foreign retailers like Walmart were on ly allowed
to operate in districts where there were no local competitors. Through these ‘
invisible barriers', China succeeded in giving local retailers protection, while, at
the same time, they learnt from the ‘more efficient' business models of foreign
companies.

“In terms of logistics, procurement and management, we have clearly seen the
benefits”. “Prices have fallen, and efficiency has increased. Initially, Chinese
had fears of the coming of foreign companies, but now they are no longer

53
concerned as local companies have been able to learn from them, and
compete with them.”

The lessons for India from China's FDI experience are, however, both limited
and mixed, considering the differences in how retail operates in both countries.

For one, it is unclear if India can pose the barriers that challenged foreign
retailers in China, starting right from land — foreign retailers here have
complained of not being given land by local governments, who control all land
transactions, in prime locations. The unorganised retail sector is also far larger
in India, with organised retail accounting for less than 5 per cent, compared
with 20 per cent in China. In China, unorganised retail, represented by street
vendors and neighbourhood ‘community retailers', has continued to thrive,
offering cheaper prices than supermarkets and retail chains.

For farmers like Zhang Wei (named changed) from Hebei, who grows
vegetables on a 10 mu (0.67 hectare) plot of land, the coming of retail has
increased — not reduced — his client base. Mr. Zhang has direct sales in a
Beijing neighbourhood every evening, while also supplying a supermarket
chain, which, he says, pays less for his produce. “My vegetables are cheaper
than in the supermarket, so I will always have my customers”.

Consolidation of the retail sector in China, as a result of the government-

supported rise of local retail giants like Bailian, has put many small farmers,
who, unlike Mr. Zhang, could not cope with lower prices, out of work.

It has, however, also improved productivity by increasing the size of

landholdings. In Mr. Zhang's village, for instance, each household had between
1 and 2 mu, but as more farmers moved to the cities for work, they rented out
their land to those, like Mr. Zhang, who stayed behind.

“The job losses have not been felt because of the pace of urbanisation and the
growth of cities”. “Yes, some small retailers have lost their jobs, but the
question is, have the benefits outweighed the costs? we would certainly say
yes.”

Thus the above discussion and case of China suggest that it is too early to
predict the erosion of mom and pop stores in India with opening of multi-brand
retail sector in India to foreign investors.

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 4.5 Impact of FDI in other parts of the world

Favourable experiences of other emerging markets suggest that the

appropriate implementation of FDI in multi-brand food retailing, with effective
checks designed to protect indigenous small and medium-size enterprises, will
eventually alleviate the supply-side impediments to agricultural production.

If effectively implemented, FDI in retail sector has the potential to bring in

foreign capital, technology and managerial expertise of big international
retailers; and develop an efficient linkage between the back -end supply chain
and the front-end via capital investment and technological inputs.

In an apparent response to those who claim that FDI in multi-brand retailing

would kill the small scale sector and badly affect the agricultu ral sector, the
experiences of some of the other developing countries indicate to the other
direction.

"It is important to remember that other countries like Argentina, Brazil, Chile,
China, Indonesia, Malaysia, Russia, Singapore, and Thailand have allowed
100 per cent FDI in multi-brand retail since the 90s and many of them have
had encouraging experiences,".

Figure 4.5.1 Impact of FDI in other parts of the world

China, for one, permitted FDI in retail as early as 1992. It has since attracted
huge investments in the retail sector without affecting either small retailers or
domestic retail chains.

Since 2004, the number of small outlets rose from 1.9 million to over 2. 5
million in China.

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"Employment in the retail and wholesale sectors increased from 28 million to
54 million from 1992 to 2001. In Indonesia, even after ten years of opening FDI
in multi-brand retail, 90 per cent of the business remains with small traders," .

It (FDI in retail sector) will transform the way perishable agricultural produce is
acquired, stored, preserved, and marketed -- and thus help control India's
persistent food inflation.

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 Chapter 5: Conclusion

5.1 Pros and Cons of FDI in Retail in India

Advantages:-

 Increased Employment
 Reduced Wastage
 Technology Investments
 Best Practices Transfer
 Increased Choices and Variety of Products
 Strengthen India as a global sourcing hub
 Increase in standard of living
 Rationalization and Convergence of Prices
 Increased investment in supply chain infrastructure
 Increased Industry Innovation
 Increased realized value by the farmers
 Infusion of capital with a long term view

Disadvantages:-

 Monopolized Industry Structure

 Negatively Impact traditional retail sector
 Heightened competition for local organized retail players
 Negative impact on the intermediaries
 Increased Price and Payment pressures on manufacturers

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 5.2 Conclusion

On the unorganized sector, the traditional players are said to get affected on
account of opening of FDI in multi brand retail. Whereas those same kinds of
retailers are surviving in US, France, etc. These players who are having close
relationship with the customers and know their demand need to enhance the
modern trend in retail in order to survive. Practically speaking, most of the
consumers are reluctant to shop in organized retail shop spendin g more time.
Whatever may be the opening, the put forward is stifle healthy competition that
would change the retail industry. As any industry getting modernized in the
globalization, the FDI in retail is not to be eluded in the developing country
where other developing countries like China are implemented this practice
before a decade.

The expectation behind the opening of FDI in multi brand retail is gigantic. The
decision on FDI should let go where the future of economy can’t be forecasted
so preciously. But the government should take precautionary measure framing
the rules to ensure that any industry would not get affected. On the periodical
manner, it should be checked how much it contributes towards the growth of
the economy and impact in other industry.

The discussion above highlights:

(1) Small retailers will not be crowded out, but would strengthen market
positions by turning innovative/contemporary.

(2) Growing economy and increasing purchasing power would more than
compensate for the loss of market share of the unorganised sector retailers.

(3) There will be initial and desirable displacement of middlemen involved in

the supply chain of farm produce, but they are likely to be absorbed by
increase in the food processing sector induced by organised retailing.

(4) Innovative government measures could further mitigate adverse effects on

small retailers and traders.

(5) Farmers will get another window of direct marketing and hence get better
remuneration, but this would require affirmative action and creation of
adequate safety nets.

(6) Consumers would certainly gain from enhanced competition, better quality,
assured weights and cash memos.

(7) The government revenues will rise on account of larger business as well as
recorded sales.

(8) The Competition Commission of India would need to play a proactive role.

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Thus from developed countries experience retailing can be thought of as
developing through two stages. In the first stage, modern retailing is necessary
in order to achieve major efficiencies in distribution. The dilemma is that when
this happens it inevitably moves to stage two, a situation where an oligopoly,
and quite possibly a duopoly, emerges. In turn this implies substantial seller
and buyer power, which may operate against the public interest.

The lesson for developing countries is that effective competition policy needs
to be in place well before the second stage is reached, both to deter
anticompetitive behaviour and to evaluate the extent to which retail power is
being used to unfairly disadvantage smaller retailers and their customers. The
sources of retail power need to be understood to ensure that abuses of power
are curbed before they occur. The more important debate lies in the
parameters of competition policy. The benefits brought by modern retailers
must be acknowledged and not unduly hindered. While it is true that some
dislocation of traditional retailers will be felt, time will prove that the hardship
brought will not be substantial. Competition law is being created and adopted
across Asia but in the immediate future its impact is not expected to be large.
Competition laws only become vital as time passes and retail becomes
concentrated in the hands of a few powerful companies, whether or not these
companies are foreign or domestic.

In conclusion, the issue that India must grapple with now is the impact of
reduced competition brought about by retailer concentration will have on
various stakeholders and the ways in which competition laws and policy can
deal with this growth of power before it is too late. The new Competition Act,
2002 has all the required provisions. It would, anyhow, depend on how it is
implemented.

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