It would be unfortunate for every Indian, whether or not the individual Indian realises it, if the country’s retail industry were to become hostage to the cacophony of protests against the modern formats that are redefining the rules of selling and buying. At the same time, an amused observer can always take the brusque approach and assume that “this, too, shall pass”. India, after all, cannot do without her share of native naysayers. Ultimately, the dust settles down.
Without editing any group’s point of view, it is important that the mere rhetoric of it is squeezed out, forcefully if required. More important still, the voices of thought leaders, solution seekers and liberal-thinking retailers must be heard. It is not a question of handing over the baton to one group at the cost of another. The Indian retail industry certainly cannot evolve without modern concepts, but it simply cannot do without what we all know as traditional ‘dukaandari’.
Some critical questions that can probably lead on to some answers are:
• Should retail be given industry status? If so, why?
• What do you think should be the government’s retail policy in the immediate future?
• With prospects of a Lok Sabha election giving rise to political uncertainty, what impact will it likely have on retail?
• Will the anti-organised retail protests impact on retail, and if so, to what extent?
• Are you in favour of FDI in retail?
• What would be the effect of rising costs of real estate on retail?
Indiaretailing presented these questions to industry leaders and observers, so their views can cohesively build up a platform for harnessing positive ideas and a workable action plan. At the end, it is Indian retail that wins, and that is what matters.
Karan Behal
Managing director and CEO, Pretty Secrets
I think industry status for retail is a must. Being a small part of a wider portfolio of a particular industry, many issues or matters remain untouched and many questions, unanswered. The industry status gives an individual ministry and greater say. The focus will obviously be on all elements of retailing that will help in overall growth of the industry, and pace of progress will be accelerated. The ongoing state of despair as also the uncertainty amongst the small and marginal retailers may be handled and taken care of in a better way if this was an individual industry. Retail business, be it organised or unorganised, contributes to a major part of national income and needs to be considered seriously.
The retail protests make for a complex situation today, but will not be the same in another few years. The growth of the economy and the country lies in the industry that has potential to grow. If we bar the multinationals or corporates to enter the business, the business will not grow. Secondly, small traders must understand that though there will be a tough time for a while—as they need to innovate and modernise, they can co-exist happily. They co-exist in the developed nations, so will they here.
On the effect of rising costs of real estate on retail:
Retailing is all about location, location, location… real estate players know this and are cashing in on the same. There is need for an initiative to control the way prices are going up. There is a need to establish understanding between a retailer and a property owner. The upcoming or developing brands face big hurdles as it becomes difficult to open a company-owned exclusive outlet due to high property rates. If you choose to go through the franchise route, you’ll be surprised to see that most of the brand franchisees are actually the shopowners. They can afford to have a brand franchise only because they do not have to pay ever-rising rents for the same.
The problem will keep worsening like a bad ailment, so some measures must be taken and associations and government bodies must come together to find a conclusion.
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Pradeep Hirani
Managing director, Kimaya Fashion Private Limited
Certainly, retail in India should be given industry status. It is presently accounting for over 10 per cent of the country’s GDP and around eight per cent of the employment. India is fast becoming the retail destination of the world. According to the international management consultant AT Kearney, India has emerged as the leader in terms of retail opportunities. The retail market in India is anticipated to grow to USD 427 billion by the year 2010.
The face of the Indian retail industry is changing. India is passing through a retail boom today. A number of changes have taken place on the Indian retail front such as increasing availability of international brands, increasing number of malls and hypermarkets, and easy availability of retail space. With the Indian government having opened up the doors for FDI, the entry of foreign retailers into the country has become easier. India has come a long way from the traditional kirana stores and is on its way to becoming a ‘mall country’. The emphasis has shifted from reasonable pricing to convenience, efficiency and ambience.
The major factors fuelling this change are the increase in disposable incomes of people, improving lifestyles, increasing international exposure, and increasing awareness among customers. India has a large middle class as well as youth population, which has contributed greatly to the retail phenomenon. The middle class is considered to be a major potential customer group. The youth are perceived as trendsetters and decision makers. Tourist spending in India is increasing, which has also prompted the retail boom.
Food and grocery are the two categories in the Indian retail sector which offer the most promising opportunities. Apart from this, the other areas where there are vast possibilities for Indian retailers are jewellery, apparel and consumer durables. Indian retailers are also trying to create a niche for themselves in areas such as books, gifts and music.
A well-researched, 360 degree approach is needed to arrive at evolving solutions for better and effective retail policy. Retail policy has to ensure solutions to contextual problems in order to prevent such additional costs from being passed on to consumer, as irking him might spell trouble sooner or later.
A major gap in Indian retail is its fragmented structure. Even though the government policies that created this distortion have gradually been removed, their impact will be felt for some more time. There are very few examples of industry leadership and reference points in India, especially in high-end fashion and luxury retail, that can be aspirational or inspirational for the rest of the industry. The fragmentation of supply base also creates barriers in achieving true integration between the various links in the supply chain. This creates issues of lack of control and lack of consistent or reliable performance. The huge geographical spread further complicates this issue.
The government has, in the past, also kept foreign investment out of textile and apparel retail. It has gradually removed these restrictions, and also brought down import duties on capital equipment, creating grounds for foreign investors to set up manufacturing plants competitively in India. Having said that, I only say FDI in retail is good – but not at the cost of losing our indigenous skills, IPRs and heritage. So, retail policy has to ensure Indian recipients of FDI should not end up being bought over or left bleeding by major profit going abroad.
Labour laws are still seen to be relatively unfriendly to business, with companies having less-than-ideal flexibility to follow a ‘hire and fire’ policy. To avoid any potential trouble with unionisation of labour, companies have often broken their business down into small units, which have, in turn, lost the efficiencies of scale. Some other problems remain, such as excise and various tax imbalances. Rising costs of real estate, fuel, manpower and logistics have only added to fall in margins.
Political instability generally has resulted in depleting treasury due to elections and nervous actions in stock exchanges, thus bringing turmoil across each sector. Further, to make up for the losses, prices are increased – right from basic commodities to fuel, to taxes. In fact, fashion and luxury trade always takes a serious hit on the assumption that it operates on high margins. One can expect the same this time also, if Lok Sabha elections come around.
On the effect of rising costs of real estate on retail:
It is definitely a hindrance in expansion. Expenses incurred to acquire high-priced real estate are phenomenal, and no player can sustain for long if it is not passed on to the customer. As a result, rise in prices of each product in organised retail format would become inevitable.
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Suresh D Bhatia
Country head & director
Major Brands (India) Pvt. Ltd
Yes, retail should be given industry status. Organised retailing is getting bigger and with the workforce deployed, it would be a great help for the employers as well as the employees if this status is officiated. This would also help the small retailers get financial assistance from banks.
Since retail and IT sectors are booming in the country, the government will have to take a view in these sectors and would have to make necessary changes to adapt to modern-day retailing.
The anti-organised retail protests may not have a direct impact on small-format retailers, but on large-format retailers, there could be repercussions. One needs to wait and watch for government policies in this regard.
Single-brand retailing in FDI is already permitted, but a totally open market would always be welcome. It will boost the trade further and create employment opportunities for all.
On the effect of rising costs of real estate on retail:
The current rising cost of real estate is definitely not very encouraging for retail. One will probably need to wait for another couple of years, when the supply of retail space overcomes the demand. This is when the rentals would stabilise to make retail a viable venture.
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NV Sivakumar
Consumer & Industrial Products and Services Leader
Retail & Consumer Leader
PricewaterhouseCoopers, India
Our perspective at PricewaterhouseCoopers is that the retail sector should be accorded industry status. (The Indian retail sector comprises 13 per cent of GDP and employs seven per cent of the nation’s workforce.) The government, in order to boost retail sector growth, should accord industry status and ease labour laws. This would require lending norms to be fixed, and facilitate passing of regulations and channelling retail-related issues through a single ministry.
We believe that the government will further liberalise the retail sector. The government should develop a roadmap for opening up the retail sector.
Studies in India and in transitional economies reveal that the growth of organised retail will result in increased employment, heightened sourcing of goods, and reduced wastage in the food supply chain. In this context, any political change should not come in the way of further liberalisation.
With regard to the anti-organised retail protests being staged in a sporadic manner, all I can say is that demonstrations impede the growth of modern retail. The growth of organised retail will result in increased employment in India.
FDI in retail will have positive macroeconomic effects. Liberalisation, in a relaxed manner, will ensure a happy coexistence between both modern retail players and mom-and-pop stores.
On the effect of rising costs of real estate on retail:
Rising retail real estate costs can deter the growth of modern trade. Real estate is a critical enabler for the growth of organised retail and we anticipate some price stabilisation moving forward.
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Harsh Chopra
Managing Director, RayBan Sun Optics India
“A Lok Sabha election will put all reforms on the backburner and decisions on organised retail will be put on hold. Organised retail is widely perceived by the ‘aam aadmi’ as an operation run by giant corporates, which will change the rules of the game and displace crores of small shopowners and traders. The fact that it will benefit a larger section of the population, from farmers to consumers, is not understood at the grassroots level and needs to be effectively communicated. A small but vocal minority of middlemen and traders needs to be countered by informed public opinion, and an industry-level coordinated effort will be required by the organised retail community to move ahead.”
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R Subramanian
Managing director, Subhiksha
“Industry status is an outdated concept; it was relevant 20 years back when that determined whether banks and FIs can lend to you or not – today it has no meaning – this is a non-issue.
However, what can be useful is to bring in clarity on a single regulatory ministry – today, ministry of consumer affairs, ministry of commerce, and ministry of agriculture all seem to have claims on the retail space – it would be helpful to have one ministry manage this as this would ensure that all policy matters are handled at one point and sector expertise built in.
In the immediate future, the government’s retail policy should be to understand and clarify that opening up of retail would benefit the end-consumer and that as the economic growth story has been triggered by domestic consumption, any activity to open retail will only add to it – to openly assess who are the opponents of retail opening and what the concern areas are, and debunk the myths and work forward on solving the real issues that exist – to ensure that the opening up and policy framework should be ownership-neutral, in that whether ownership is Indian or foreign should not be a case for concern and FDI should be freely allowed.
I believe that FDI in retail should be allowed unrestricted. However, the government can use this as a tool bargain and get substantial concessions on areas like free access to services (unlimited employment visas out of the US and EU) so that we get something in return for this opening-up.
At this point of time, any tough decisions on opening up retail are unlikely – while LS elections may be still well over a year away, the 123 deal decisions of last week show that the GOI will move slowly on sensitive matters. So, it is sensible to expect status quo for now; one does not believe that there will be any tightening or increased restrictions, though.
Anti-organised retail protests create more media hype than being a real impact – consumers are not complaining, nor are farmers. I guess there is really no great sympathy for the few middlemen who are protesting.”
On the effect of rising costs of real estate on retail:
“Real estate and people are the two largest costs for any retailer. Indian real estate is incredibly expensive – given the booming economy and the densely populated cities, the scope for fall in rates seems remote. Retailers have to learn to live with high cost of real estate for the foreseeable future.”
