Saturday, November 26, 2011

To Retail or Not to Retail That is the Question

Remember that scene from Tom Hanks and Meg Ryan starrer 1998 romantic comedy film  You've Got Mail where Kathleen Kelly’s (Meg Ryan’s) bookstore The Shop Around the Corner  falls prey to the corporate fangs of the Fox Books. Those of you who have watched the film may agree with me that while we observed the dance of events on screen, we all had hoped  that virtue will be ultimately rewarded  and Meg Ryan will win the battle with Joe Fox (Tom Hanks)—one  of the corporate heads of his family owned “mega” bookstore, Fox Books—and by some means save her charming little bookstore.

Imagine this fictional figment unraveling in real-life, the thespians replaced by pedestrians and you will get the feel of the present retailing imbroglio in India unleashed by the government’s easing of the Foreign Direct Investment rules. The myriad-minded Indians are speculating whether to assign the protagonist’s hat to chain superstores like Wal-Mart, Ikea, or deign them as vicious antagonists. The current situation is dubious.

The cabinet of the Congress party-led coalition in the country’s capital, New Delhi, agreed on Thursday to allow foreign multi-brand retailers to own up to 51% of joint ventures in India and single-brand retailers like Nike, Apple, etc., to own up to 100% of their Indian businesses. This move on the part of the government being long overdue, I feel that embracing free-market policies will ultimately beget good results for the country.

Nevertheless the contingencies of allowing foreign retail stores unlimited access cannot be overlooked. Several mom-and-pop establishments, corner stores, and local businesses may face their demise on account of being unable to compete with giant chain-stores. I still remember how during my stay in USA I observed a local Target store usurping the business of a strip-mall next to my apartment complex in Nashville, TN. The American economy was at the time on the brink adding more pressure to the already ailing local stores ultimately resulting in several of them renting their shops to other stores or closing their doors. The electronic retail giant Circuit City went down during and time and moved their business online.

The Indian economy is struggling right now. Recently the Indian currency plunged to an all-time low dropping 52.70 against the US dollar. High inflation and lower growth rate have added to the rupee’s decline. And the Indian government feels, rightly in my opinion, that the easing of foreign investment rules will somehow ameliorate the situation and propel the moribund economy. The ever-increasing Indian retail market that currently does a business of $470 billion a year is expected to show a hike thus helping the rickety economic infrastructure of the country.

The local businesses that make up the majority of the above mentioned percentage do surely take liberties. In many cases goods purchased lack in quality and are more expensive that average Indians could afford. Food pricing being arbitrary India even minor disruptions in harvest results in shortage of certain crops or vegetables. A lot of produces are wasted every day because of the lack of proper storage areas and transportation issues. It is expected that foreign retailing superstores will work from the ground-up setting up warehouses, getting transportation means ready for swift movement of goods and establish rapport with farmers and local business owners.

The whole new future scheme may sound optimistic for India, but inside this well-laden growth plan there lie this question: who will actually visit these newbie chain-stores? Several Indian citizens who have been brought up on local-market produce and local made goods will look askance at these stores. Even now, people hailing from rural parts of India and people who are partially exposed to the fruits of globalization, people who have limited access to education and basic amenities will definitely feel intimidated by these superstores.  The retailing market is targeted at the new-generation, the well-educated, financially remunerated class and the upper-middle class who generally consider brand-shopping as a prerequisite of class and sophistication.

In my case I remember growing up on few branded clothes, but now the situation has taken a tectonic shift as youngsters and almost all modern Indian folks I see around me wear nothing but super-brands like Levis and Burberry. It is a part of the New-Indian culture that women and men who earn well are supposed to maintain an ostentatious standard of living; and such lifestyles have already resulted in mega-brands from Levis to Louis Vuitton, from Dior to Hulsta flooding the Indian market. Gurgaon, the city where I now live boasts of housings 43 malls including the biggest, Mall of India, giving Gurgaon the 3rd highest number of malls in an Indian city.

I believe that superstores like Metro and Wal-Mart will do well in these cosmopolitan urban locations, and surely enough the government has laid down specifications forbidding foreign retailers from setting-up their stores in locations falling short of ten lakh (one million) in population. Another imperative laid down by the Indian government necessitates retail stores to shop 30% of their goods from local farmers and small business owners. This move, in my opinion, will definitely cut the middle-man conducting business deals out and lead cash flow directly into the hands of the retailers.

.In the political fairground of India the government’s decision of giving the “aye” to this major open-market movement has already started creating political controversies with politicians hailing from the opposition sector retorting to acerbic vocabulary in demeaning the government’s move. Uma Bharti, a major political-thespian in India belonging to the Bharatiya Janata Party (BJP) condemning the government’s act of easing FDI rules said she would "set fire to the first Wal-Mart store whenever it opens here, regardless of the consequences”. Another politician, Uttar Pradesh Chief Minister Mayawati, was vociferous on the issue too slamming the government for its irrational move.

In conclusion, it remains to be seen whether the Indian consumers are ready to change the way they have been shopping. It sure behooves them to use their discretion in choosing the method of shopping that suits them. And even though political parties with differing opinions may prescribe affirmative or negative results of the governmental move, the whole effect of this open-door-welcome scheme will beget its results only when both the Indian consumer and the big-box retailers join hands in agreement. And sure many Indians preferring in-home delivery of groceries from their local shops will need more than just average discounts to be lured to the doors of Wal-Mart and others of its like.