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Retail reality: The true story
BS Reporter in New Delhi | September 19, 2007
The opposition to large retail shops seems to be growing, and broadening to take in domestic retail chains as well as the international giants that want to enter the Indian market. Admittedly, such opposition flies in the face of the received wisdom: studies based on extensive field surveys have concluded that the spread of organised retailing will not hurt millions of small mom-and-pop, or kirana, stores across the country. But the experience so far (and it is early days yet) suggests that this may not be entirely true.
Not necessarily so, since there are many factors at play. First, due to the unavailability of large amounts of land in or near city centres, the spread of big retail outlets has been fairly slow so far. Even in the areas where big retail shops have been set up, the natural growth of the market has been enough to cushion the impact on small kiranas, which in any case have lower cost structures and more flexibility than big chains. The real impact of big retail shops will be seen only when their growth after project stage, some months after opening date, is faster than the natural growth in the market.
In cities like Bangalore, the presence of a cash-and-carry segment has ensured that some part of the economies of sourcing associated with large retail chains are passed on to small kiranas as well. The kiranas also have as allies the FMCG majors who live with the knowledge that retail majors will drive tough supply bargains; in order to be less dependent on such low-yield outlets, FMCG firms have been known to offer kiranas better discounts and more credit so that they stay alive in the market and continue to provide alternative points of sale. The final result of the competition between big and small retailers will depend on how some of these factors play out.
Any policy intervention has to take into account several factors. For one, any change of technology or scale will inevitably result in market shifts, which in turn could yield to downside effects like job losses, whether it is in retailing or in powerlooms replacing handlooms. The policy response in each case has to be to ensure that there are as few difficulties in absorbing the displaced in other parts of the economy -- this implies facilities for re-training as well as ensuring that other parts of the economy grow well.