Monthly Archives: September 2012

Big and Small in Retail

(Published in the Telegraph, Calcutta, 11 September, 2012)

It appears that a survey conducted by a reputed research institute has concluded that a single Walmart store can substitute for more than a thousand average retail stores in India. On the face of it, the claim is simultaneously dramatic as well as disturbing, both from the point of view of employment generation as well as that of business interest of small and medium retailers.

The finding though, assuming that it is error free, raises a question of analytical interest as well. Will the arrival of Walmart in India wipe out a thousand or more small retail stores that already exist? Or, will it pose a threat for the potential entry of similar small businessmen into the retail sector? The direction of causality carries undeniable significance. Destroying the means of livelihood of existing traders has grievous implications. Charting out a map for the future on the other hand is in the nature of a planning exercise. It is not entirely clear which of these two questions is being answered by the research work quoted above.

And it is not merely Walmart that should be under the scanner in this connection. It has been several years now since India too came up with its indigenous variety of supermarket chains. It is puzzling, therefore, that the Indian stores are not being seriously questioned by the critics of FDI in retail trade.

In this connection, an obvious line of investigation should be directed towards the first of the causal links, viz. the extent to which small shop-owners have been displaced by large multi-brand Indian retailers. Whether serious researchers have addressed this issue or not, the lay public has rarely been treated to anything more than the verbal rhetoric that opponents and supporters of big investment in retail engage in. 

What, however, does casual observation suggest? The pavements of the city of Kolkata have long been suffering from hawker induced pedestrian jams. The hawkers’ stalls offer a wide variety of products, starting from fruits and vegetables, fast food, clothing, trinkets, stationery goods, books leading all the way to semi-sophisticated electronic equipment. If large scale retailers are a threat to the hawkers, then some of the major street junctions of the city today should have turned into pedestrians’ paradises. Quite clearly, this is yet to happen.

Indeed, if anything, one hears allegations that the hawkers’ temporary sheds have posed a threat to the conventional stationery shops located inside permanent structures. In fact, the more commonly heard story is that many a medium size shop owner uses hawkers’ stalls in the immediate vicinity of his store as extended showrooms. If this observation is true, then the price wise competition brought forth by the hawkers has led to implicit collusion and therefore peaceful coexistence of the big and the small. Also, such arrangements lead to what economists refer to as discriminating monopoly, with better off and possibly somewhat stuck up consumers paying a higher price for any given commodity inside the air-conditioned comfort of regular shops and hawkers satisfying the needs of the economically humble majority. And, as economics textbooks teach us, monopolistic behavior, discriminating or otherwise, leads to unfair allocation of resources as well as welfare.

It was not, however, the hawkers vs. stationers that we started off with. We were actually concerned with the burning question of massive investments in retail trade and their possible impact on the small traders. The Indian version of big investors in retail trade appears to be thriving. The convenience of shopping they offer is attracting many consumers. This is all too evident from the queues that form at the payment counters. Often customers are known to wait for at least half an hour to clear their bills before exiting the premises. And, as already noted, this has not brought about any significant change in the clientele size of the small street peddlers.

The multi-brand retail establishments probably attract both types of consumers we have identified, those who wish to enjoy a price advantage as well as those with an eye towards ambience. The price advantage is evidently available in the large multi-brand retail stores, partly because big capital has a buyers’ benefit in the wholesale markets as well as at prime producing locations. Some believe that their presence keeps on hold the extortionist practices middlemen engage in, though this hypothesis calls for serious field investigation. Quite apart from price competition, the multi-brand retail stores can be relied on for purchase quality. Packages bearing the seal of authenticity of product attributes including quantity, as well as the availability of diversity make shopping a simpler as well as happier experience, though the happiness of the experience attracts disapproving frowns from the “opposition” camp.

There is a cultural constraint it would seem in approaching the issue from the point of view of consumer satisfaction. Consumers’ interests, many feel, should be the least important amongst the concerns of policy makers. Paradoxically enough, we do not hesitate to celebrate the fact that for the first time in contemporary Indian history, consumer expenditure in rural areas of India has exceeded that of the urban population. Urban consumers, in other words, are to be treated with suspicion and rural consumers eulogized. One is not quite sure why this ought to be the case, but a probable reason lies in the perception that rural areas are poverty ridden while urban dwellers are exploiters. This may well be the case to some extent, but the latest figures reveal that the latter, even as they are reveling in the sinful luxury of shopping malls, have actually consumed less than the exploited masses.

Going back to the causality question once again, it was noted that the shopping plazas have not quite usurped the existing small or medium traders, at least not visually so. From the logical point of view as well, how many shopping plazas would be required to completely satisfy the demands of a populace exceeding 120 crore? The arguments presented so far suggest that large scale retail trade, however large it may be, cannot possibly weed out the small traders, simply because there are too many consumers to cater to. Will the arrival of FDI in multi-brand retail trade make a major difference to the argument? As far as small traders are concerned, it is not so obvious how Walmart and others will pose a threat to their business. However, the Walmarts might pose competition for their Indian counterparts. What is more likely to emerge is competition between big capitalists, unless the large Indian retail marts invest more and adopt modern technologies. Whether they intend to do so is unclear, especially in the context of the infrastructure debate.

It is widely believed that FDI in retail trade will benefit farmers through the creation of spacious cold storage. There will be less wastage of produce as a result and farmers will not be forced to sell their products at throwaway prices to unscrupulous intermediaries. Whether this will actually happen is a matter of conjecture, especially since Indian investment in multi-brand retail trade is still to initiate investment in supply chain infrastructure.

What seems certain, however, is that multi-brand retail trade, both big and small, will survive. The giants will capture a chunk of the formidable Indian middle class market. However, even if its size is significant in the eyes of the retail Goliaths, it is a small fraction of the aggregate retail market in India. Consequently, as with the hawkers and the stationers, the small may not be swallowed up. Moreover, since the supermarkets will generate employment for otherwise unemployable young people who have completed high school education at best, the employment scenario is likely to improve. These employees will add to those already employed in existing small stores, without creating a barrier for similar shops in future.