Archive for the ‘Retail’ Category
A few months ago, senior executives of Italian luxury brand Salvatore Ferragamo met officials at the Delhi international airport and came away impressed by the swanky T3 terminal. But will travellers get to shop for Ferragamo’s famous Wing-tip Derby shoes while in transit? Well, no, since the company is not setting up shop at the airport anytime soon.
“No luxury brand will take airports seriously at this point in time,” says Dipak Agarwal, chief executive operations and strategy, DLF Brands, which has a joint venture with Salvatore Ferragamo in India. “Travel retail will evolve in India, especially in the luxury space, only when our airports become transit points for people travelling across continents.”
For another luxury label, Louis Vuitton, finding a hotspot at any of the airports in India may not be a tough task, but the brand’s expansion is restricted to luxury malls and hotels. Despite the privatisation and upgrade of airports in India, not many high-end luxury brands have opened exclusive outlets to sell apparel, bags, shoes, watches and jewellery. While some say this is because airports in India still do not meet global standards, others blame it on the profile of Indian travellers.
“Our airports need to be upgraded to suit requirements of luxury brands. Besides, Indians travellers are buying products like whiskies, cigarettes and fragrances at airports but not high-end clothing, watches or jewellery,” says Tikka Shatrujit Singh, chief representative in Asia for Louis Vuitton.
“The profile of consumers is very important. In India, it takes long for a high-end luxury brand to make an airport store profitable. It is quite challenging,” admits Romy Juneja, chief commercial officer, Delhi International Airport. Among the premium brands at the duty-free area at present are Hugo Boss, Mont Blanc and Swarovski.
In terms of cost of operations, brands have to shell out more to be at the airports. “A store at airport is good for visibility, but the costs are just double. There are also other issues like security clearances and odd duty hours for staff members,” says Yashovardhan Saboo, chief executive of Ethos Swiss Watch Studios. Ethos sells watches from over 50 brands.
Monthly rentals at airports range between 6,000 and 12,000 a square metre, says Amit Arora, managing director at Buddy Retail, which buys retail space from airport operators to lease it out to brands. “There is a market for semi-luxury goods and low indulgence categories like fragrances, liquor and pens, which cost less than 10,000. There are very few people buying luxury products at airports in India and it will take another 10 years to take off,” says Arora, whose company manages retail spaces at Delhi, Mumbai and Hyderabad airports.
Even LVMH’s Tag Heuer brand is sold at Ethos stores at Delhi and Bangalore international airports. However, the group, which has Tag Heuer’s standalone stores at airports worldwide, does not have any in India.
“We want first to make our current airport doors (retail point) more successful,” says Franck Dardenne, general manager, LVMH Watch & Jewellery India. TAG Heuer has 95 retail points in India, while Dior Watches has 16 and Zenith has seven across the country. “You will not see many luxury watches sold in national airports now; customers prefer to buy in their city, where they know the service they can receive,” says Dardenne. Even Genesis Luxury, which has a host of brands such as Paul Smith, Bottega Veneta, Canali, Burberry, Jimmy Choo and Armani, does not have even a single store at airports.
After a lull of more than two months, Indian shoppers are thronging malls and high streets once again, lured by the end-of-season discount sales, and bringing some relief to nervous retailers.
Retailers say early signs are encouraging than the same season last year, although these are early days and total actual sales numbers cannot be predicted yet.
“So far it has shaped better than last year,” Kailash Bhatia, chief executive of Pantaloons department chain says.
Dipak Agarwal, chief executive of DLF Brands, that markets products of brands including Mothercare, Mango, DKNY, Alcott among others, says the average sales at the brands under the company’s portfolio doubled in the first week of July compared to the same period in June when the discount sales had not started.
Retailers have been nervous about whether shoppers would open their wallets amid a slew of negative news on the economic front such as increasing fears of below-normal monsoon rains, slowest GDP growth rate in nine years, US President Barack Obama expressing concerns about India’s investment climate, increasing food prices and prevailing high interest rates.
After lukewarm sales in May, many brands including Arrow, French Connection and Puma advanced the start of their end-of-season sales to the last week of June instead of the traditional July.
Now, with a whole host of other retailers joining in with discounts, consumers are back in the street in large numbers, causing traffic jams in main shopping areas this weekend.
At the Noida Sector 18 market near Delhi, for example, hundreds of shoppers were driving up and down this weekend looking for a parking space.
“It seemed I was shopping in the US. The sale looked genuine. I bought two Lee and two Wrangler T-shirts, two pairs of Albatross leather shoes and five pairs of sandals for my six-year old from Lifestyle and I paid just 7,500,” beamed a shopper holding a clutch of shopping bags at The Great India Place, the largest mall in Noida.
DLF Brands’ Agarwal says many retailers were apprehensive of the slowdown and through early sales they were trying to avoid an inventory build-up. And he expects consumer spending to remain high in the coming months.
Jitendranath Patri, head of marketing at Central, a department chain owned by Future Group, shares Agarwal’s optimism. “There is a long festival season starting from August and consumers will have something to celebrate each month during Ramzan and Diwali,” Patri says.
Others such as Arvind Lifestyle Brands CEO J Suresh and Indus League Clothing CEO Rachna Aggarwal, however, warn that the positive response to discount sales need not necessarily mean that the good run will continue post August when most of the sales are over. “End-of-season sales never gives the true picture,” says Suresh. “It is more important to see if sales will stabilize after the discount sales period or if a slowdown will continue,” he adds.
Bhatia of Pantaloons says more and more customers now wait to shop during the sales seasons. Almost 30% of Pantaloons’ revenues are generated during the discount seasons for the last four-five years.
While the footfall has grown this discount season, Patri of Central says the average ticket size of a Central customer too has increased to 2,500 this from 2,300 last year, making it a double whammy.
A spokesperson for German sportswear brand Adidas AG says the company was expecting double-digit growth at its like-to-like stores during the sales season and it has achieved that target.
Lavina Rodrigues, marketing manager at Metro Shoes Ltd, which sells multi-brand footwear through 175 outlets across the country, says the company is yet to gauge the sales records for the two-day flat 50% sale this year, but indications are it is same as July last year. She says Metro is generally able to sell almost 60% of the old stocks during the sales periods. In some cities like Rajkot, where consumers are more receptive of the discount season, the company would get rid of almost 85% of the old stuff.
Evidently, there is no national consensus on allowing FDI in retail. Advocates tout it as the much-needed major policy push that could arrest the economic downturn, bring in not only foreign funds but advanced technology and expertise, create infrastructure, offer better prices to farmers, generate ancillary industries and create millions of jobs.
However, sceptics present a doomsday scenario: it will wipe out small farmers and traders, result in job losses and open the floodgates for cheap goods from countries like China, adversely impacting Indian industry.
While both arguments have some validity, the two sides err on the side of extremes. FDI in retail is not an unmitigated disaster as projected by some, nor a magic wand leading to instant economic growth. If allowed with professional circumspection and safeguards and viewed dispassionately, it is in the country’s national interest to allow FDI in retail.
Opening up the telecom sector to foreign investment worked by bringing a communication revolution that embraces everyone. Similarly, foreign investment in the automobile industry ended the long wait for outdated scooters and cars and led to leading global companies vying to sell the latest models in India.
When Pizza Hut, Domino’s, McDonald’s, Wimpy, Burger King, KFC and other such international brands were allowed, there were orchestrated demonstration in many cities; they were painted as anti-people and anti-Indian enterprises. We were told Haldirams, Bikanerwalas, Nirulas, Nathus and their ilk will vanish.
All these Indian chains have multiplied their outlets, diversified their production line, upgraded their packing and presentation, and are doing roaring business. In fact, some of the largest MNCs like McDonald’s, Pizza Hut and Domino’s have been forced to Indianise their offerings. Where else in the world would you find a McDonald burger with paneer and potato patties and coriander sauce?
While many starve, millions of tonnes of grain rot for want of adequate storage facilities. Ask how farmers in Punjab feel when their produce is not picked up and lies unsold. Can they negotiate higher prices? When the mercury rises, fruit don’t last more than two days.
TV channels often show how adulterated ghee, milk made out of detergent, mangoes and papayas ripened with masala, vegetables and fruit injected with dangerous concoctions are flooding the market. Who is to blame? FDI in retail?
No one should underestimate the ingenuity of ordinary hawkers and small grocery owners. They know how to reach out to their potential customers. Today, in many areas of Delhi, vegetable vendors present their carts, laden with fresh stuff straight from the farm, as early as 6:00 am.
Many joggers and walkers find it convenient to pick up their daily requirement of vegetables from these vendors. In the evening, they move near temples where devotees find it a blessing to shop for fruit and vegetables at the temple gates.
Small grocery shops realise the value of home delivery, small stores also reduce a rupee or two on most items. This demand-and-supply relationship will remain unchanged notwithstanding the entry of bigwigs like Tesco, Carrefour and Wal-Mart.
Even without FDI in retail, more than half of electronic and electrical items, machine tools, building hardware, bathroom fittings and sanitaryware, lights and chandeliers sold in India are made in China.
Why blame the US for getting its flags from China? Come Diwali, and millions of porcelain Lakshmi and Ganesh idols made in China flood local markets. You can’t wish Chinese products away; there is no option but to compete with them on price and quality.
The purchasing power of different sections of Indian society is very elastic. Many relish lunch delivered in a tiffin box for Rs 50 while a buffet lunch costs around Rs 5,000 in most five-star hotels.
So, mega stores of FDI in retail can also coexist with small traders, grocery shops and corner vendors; they will attract customers from different sections, as has been the case in the restaurant business. Those raising the bogey against FDI in retail are the same persons who opposed FDI in the telecom, automobile and restaurant sectors.
The government can ensure benefits for Indian industry by making outsourcing of 35% requirements of megastores from India itself.
They can also be asked to undertake R&D for better and higher-yielding seeds, build connecting roads, set up a chain of warehouses, cold storages, food processing plants and create green belts in the vicinity of stores as also schools, hospitals, sports and recreational facilities for their employees. Anyone claiming that FDI in retail will not create jobs is being dishonest.
The last few months have seen a lot of mid-sized office and mixed-use buildings in Mumbai going under the hammer. Not very surprising, considering the wave of real estate redevelopment that has swept the city. What is so unusual about these buildings is the fact that they are going to be redeveloped into stand-alone retail formats. The plots are just perfect – located inside dense residential areas with abutting sub-arterial roads, and of sizes suitable for constructing hundred thousand square foot spreads on three levels.
This new trend is not confined to Mumbai – almost all cities in India are witnessing it. The reason? Substantial mall space is being built, but only half of it is worth a second glance from retailers. We are still stuck with the mistakes we made three or four years ago – jumping on the bandwagon and creating too many malls without reason. Few understood that building and running malls is a science, and that factors like catchment viability, location, supply benchmarking and mall management matter in their success.
So, we have quite a few mediocre shopping centres with substandard locations in inappropriate catchments, designed experimentally and sold by strata (strata-selling mall space is like issuing a death warrant to the mall). These are ruins of hastily-commissioned projects where no retailers want to come, thus adding to the pile-up of vacant retail space in our cities. To compound this problem, there are very few new launches that can lure retailers on project merit.
The Indian retail industry is healthier than ever, scaling new heights and confident of its markets spread over 53 cities that house more than a million people each. 2011 saw a retail real estate supply of 13.8 million square feet hit the market, with 10.7 million square feet getting absorbed (JLL Real Estate Intelligence Service, 4 Q 2011).
That amounts to 130% of the figures for the years 2009 and 2010 put together. Retailers are in the market again, looking for space, willing to invest with long-term business plans and offering a premium for even half-decent properties.
What they find is a stark market reality – all worthy properties are fully consumed and good properties on hand being leased within the blink of an eye. Delaying decisions by even a few days means diminished hopes of business expansion. There is simply not enough good retail space to sell their wares. It can well be imagined what the scenario will be when FDI into multi-brand retail opens up…
With delays in completion and few retail-conducive projects being launched, it is malls, malls everywhere and nowhere to go for retailers. They have finally decided that enough is enough and have started scouting for stand-alone properties. With their eyes on old mansions, mixed-use buildings and small office blocks in established as well as emerging locations, big-format retailers and giant chains are mandating property firms to broker these deals for them.
High streets were never out of form, but now they are back with a vengeance. Properties which, with retrofitting, can enable retailers to start selling in no time at all are fast becoming precious assets for big retail companies. Even constructing glass cubes on plots that house the ‘building next door’ is seen as preferable over having to wait for properly located and configured malls to come along.
In the world of retail, stagnation is the same as dying and these retailers have no intention of slipping into a market-induced coma. Moreover, these stand-alone stores are the perfect way of giving shoppers a personalised experience that many shopper often find missing in malls.
American online retail giant Amazon.com has made an entry into the Indian market with Junglee.com, an online shopping site powered by the $ 48 billion company. The site which went live on Thursday morning says that its an online shopping service by Amazon “which enables customers to find and discover products from online and offline retailers in India and from Amazon.com.”
With e-commerce picking up in India, the third largest Internet market after US and China, the online retailer has been rumored to enter the country for some time now. Customers can find over 1.2 crore products and 14,000 brands, the website claims. The company is set to make an announcement on Thursday.
Amazon, founded in 1994 by Jeff Bezos quickly grew to become the world’s largest online retailer selling books to electronics on its website largely to the American consumer. Kindle, the company’s popular e-book reader is also being sold on the site.
Earlier, PTI had reported that the world largest Internet retailer Amazon will set up a facility in Hyderabad and employ over 3,000 people. According to the report, the Andhra Pradesh government had met with an Amazon delegation led by John Schoettler, VP (Global Real Estate and Facilities) in November after which the announcement was made.
The e-commerce market in India has more than doubled from a $ 4 bn in 2009 to nearly $ 10 bn in 2011. Nearly $ 350 mn has been poured into 40 Indian e-commerce startups till the end 2011 compared to $ 43 million in 11 companies in 2009.
Starbucks Corp will open its first coffee shops in India in August or September, a year later than originally planned, and aims to have 50 outlets by year-end through a tie-up with the Tata group, the country’s biggest business house.
The Seattle-based chain, known as much for the trendy urban lifestyle it represents as its costly cups of coffee, enters a market with a fast-growing middle class and plenty of competition in the small but fast-growing coffee segment.
Starbucks had initially planned to have its first cafes in India open by mid-2011 but was delayed by difficulties in acquiring real estate and high land costs, a common problem for chain stores in a country where more than 90 percent of retail is conducted at one-off mom-and-pop shops.
Whle the tie-up plans to take advantage of the Tata group’s sprawling presence by opening cafes in Tata hotels and retail outlets, it is also looking at other locations such as malls, railway stations, airports and offices.
“We are in the process of looking at real estate opportunities at the moment. We are moving as quickly as possible and the expansion of stores will be based on the customer feedback we get,” John Culver, president of Starbucks for China and Asia Pacific, told reporters.
India implemented new rules this month to allow foreign single-brand retailers to operate wholly owned outlets, but Starbucks said it has not considered changing the 50-50 structure of the Tata Starbucks Ltd joint venture.
The first Starbucks shops will open in Mumbai and New Delhi, and the joint venture initially plans to invest 4 billion rupees ($81 million).
The formal launch of the retail foray into India comes a year after it signed a deal with Tata Global Beverages , a unit of the software-to-steel Tata conglomerate and the world’s second-largest branded tea company, to buy coffee from India and open retail outlets in the country.
NATION OF TEA DRINKERS
“The timeframe essentially shows cautiousness. Starbucks has clearly wanted to make sure it gets the details right before entering a highly competitive market,” said Debashish Mukherjee, partner and vice-president at consultancy AT Kearney.
While India is traditionally a nation of tea-drinkers, young urban professionals of the sort that work in modern offices and frequent the shopping malls that are sprouting around its cities have embraced western-style cafe culture, and prices.
Cafe Coffee Day, a home-grown brand that is India’s largest coffee chain, has nearly 1,200 outlets and plans to open one cafe every third day. No.2 player Barista, owned by Italy’s Lavazza, has more than 200 cafes. UK-based Costa Coffee, which entered the market in 2008, has about 75 stores and is growing quickly.
“Having an iconic brand is one of the parameters which ensures success but there are many iconic brands that have fallen by the wayside, so the pricing, experience and quality must match your offering,” Mukherjee said
Western-style cafes in India charge roughly 60-80 rupees ($1.22-$1.62) for a plain cup of coffee, less than in developed markets but far more than the 10 rupees a cup charged at a basic local outlet.
Starbucks did not say what it will charge in India. Still, the organized coffee market in India, which reflects consumption mainly through cafes, is small, accounting for about $140 million of the country’s annual coffee sales of about $667 million.
Starbucks entered China, another traditional tea-drinking country, in 1999 and now has more than 400 stores across the mainland. Starbucks has more than 17,000 shops, roughly one-third of which are outside the United States.
Tata Coffee, a unit of Tata Global, said separately that it had signed a deal to supply coffee to the joint venture. India is the world’s fifth biggest coffee producer, but exports 70-80 percent of its output.
Foreign investment is invariably beneficial as it creates jobs, adds value, and contributes to the GDP.
Companies like Hyundai, Ford and Honda have built a giant automobile industry in India now producing over 2 million cars and tens of thousands of new jobs.
By 2017 India will emerge as the third-largest car-making country in the world, producing over 7 million automobiles. This would not be possible without foreign investment, technology and leadership.
In sector after sector, foreign investment has created huge new capacities catering to domestic and foreign markets. The level of foreign ownership makes no difference to the contribution foreign companies make to the economy.
The desirability of foreign investment must never be questioned as long as it creates jobs, adds value and contributes to development.
And these are just the factors that go against foreign direct investment in retail.
Study after study in developed and developing countries alike have shown that big box retail rather than creating jobs, destroy jobs.
In fact their utility in developed economies is due to the labour savings they achieve. This, combined with bulk buying and the recourse to monopsonic (the opposite of monopoly) practices, results in pushing down producer prices, undoubtedly with resultant benefits to the consumer.
On the other hand, the more of a commodity large retailers purchase in bulk, the lower the prices growers of agricultural commodities obtain! Studies by FAO and Oxfam attest to this.
For instance, a decade ago coffee growers earned $10 billion from a global market of over $30 billion but now they receive less than $6 billion out of a global market $60 billion.
The cocoa farmers of Ghana now receive only 3.9 per cent of the price of a typical milk chocolate bar but the retail margin hovers around 34.1 per cent.
A banana farmer in South America gets 5 per cent of the retail price of the banana while 34 per cent accrues to distribution and retail.
The average size of a Walmart is about 100,000 sq ft and the average turnover of a store is about $53.2 million, each employing about 300 workers. The turnover per employee averages $175,000.
Walmart has a 9 per cent return on assets, a 21 per cent return on equity, and its CEO Michael Duke’s $35 million salary, when converted to an hourly wage, worked out to $16,826.92. In comparison to this new employees are paid $8.75 an hour that would gross $13,650 a year.
By contrast the average Indian retailer had an annual turnover of Rs 330,000. Only 4 per cent of the 12 million retail outlets were larger than 500 sq ft in size.
India has 53 towns each with a population over 1 million. If Walmart were to open an average Walmart store in each of these cities and they reached the average Walmart performance per store — we are looking at a total turnover of over Rs 141,000 million with the employment merely of about 16,000 persons. Extrapolating this with the average trend in India, it would mean displacing about 758,000 persons.
Quite clearly Walmart is not going to create more jobs in India. On the contrary it will cause a massive loss of jobs in direct retail.
This is the experience in the USA also. A 2004 study by the Pennsylvania State University concluded that counties with Walmart stores suffered increased poverty, and suggested that it caused displacement of higher paid workers in small family-owned retailers.
Another 2007 study has shown that towns in Nebraska with and without Walmart fared similarly different in terms of joblessness and poverty.
A study of Walmart’s expansion in Iowa found that 84 per cent of all sales at the new Walmart stores came at the expense of existing businesses within the same county.
The major argument in favour of the benefits a Walmart or Carrefour will bring centers on the perceived benefits to agriculture and better prices to the farmer.
Empirical evidence from many countries, where big retail chains dominated, show that on the contrary farm realisations actually decline.
A recent joint study in Finland by Agrifood Research Finland and Pellervo Economic Research Institute reveals that for each kilo of rye bread purchased in 2010, for which the consumer paid 3.52 Euros, 1.24 went to the seller, while the grower received only 14 cents.
A further 1.74 Euros were shared by the milling company and logistics, while the rest went to the state as taxes. The study also revealed that while the trade got 19 per cent of the takings on food, it went up to 29 per cent in 2009.
Finally, the study showed that food prices rose faster than other consumer goods between 2000 and 2010.
Big business and MNC’s like PepsiCo, Cargill, ConAgra and even ITC have been procuring food grains and farm produce for several years now and there is no evidence that general prices have increased.
Even where better prices were paid to contract farmers, data available suggests that input costs have been higher.
Simple economic logic tells us that nobody pays more for a commodity that can be obtained for less. Business is about extracting profits and not about charity.
Protagonists of FDI in retail talk a lot about modernising the supply chain. Consider this: The National Sample Survey relating to household expenditures reveals that fruits and vegetables only account for 9.88 per cent of urban household expenditure.
It is widely agreed that the supply chain that links the Indian producer to the domestic consumer is primitive, outmoded and wasteful. Many studies exist that detail the extent of wastage.
One will readily concede that large format retailing with its capacity for bulk procurement and capital investment, even if it accounts for a fraction of the retail trade in the sector, might be able to make some headway in modernising the supply chain.
But before we get into the ‘for and against’ argument vis-a-vis FDI, we must also ponder over the fact that a modern and nationwide supply chain has been created, indigenously, for milk and milk products which account for 8.11 per cent of household expenditure.
Similarly, we have an effective supply chain for food items such as cereals, pulses, and sugar and edible oils, which together account for 24.16 per cent of household expenditure.
All other non-food goods purchased by our households such as tobacco products and alcohol, processed foods and snacks, toiletries, detergents, garments, etc, which together account for 52.57 per cent of all urban household expenditure, are made available for consumption by modern and efficient supply chains.
Thus, what the average household does not get from a modern supply chain is a very small part of its purchase. So the argument that the pro-FDI lobby extends vis-a-vis of FDI in retail of modernising the entire supply chain is a bit exaggerated.
The supply chain as it is now is mostly modernised and efficient, and what is yet to be modernised covers only a very small part of urban household consumption.
The argument then that we need the merchants of the western world like Walmart to modernise just 9.88 per cent of the supply chain is a bit bogus and self-serving.
More than anything else it is Walmart’s Chinese connection that should cause us to worry.
While Walmart has 352 stores in 130 Chinese cities with a total turnover of $7.5 billion, Walmart directly buys via its procurement centres at Shenzhen and Dalian over $290 billion worth of goods from more than 20,000 Chinese suppliers, 70 per cent of its 2010 global turnover of $420 billion. (The Atlantic, December 2011 pp82).
If Walmart were a country it would be the fifth largest exporter to the United States of America. This also suggests that Walmart’s procurement from China is the major source of its profits.
With its huge monopsonic power, Walmart actually depresses wages, by forcing suppliers to cut costs.
A good example to demonstrate the low wages in the Chinese labour market is contained in a report by Thomas Fuller in The International Herald Tribune of August 3, 2006, which investigated the percentage split in profit in the shoe industry between the Chinese factories and those who market and sell the finished products in the US and Europe.
The factory owners after the laborious process of manufacturing makes a profit margin of 65 cents per pair of shoes, which are sold ex-factory for $15.30.
“A major US retailer, after factoring in shipping, store rent and salaries, sells the boots for $49.99. Assuming a pretax profit margin of about 7 per cent, an average among large US retailers, it earns $3.46 on the same pair of boots.”
However the story doesn’t end with the unfair profit margins. The Chinese labourers, who make the shoes, box them and even affix the price tag, are the ones who get the worst deal. The International Herald Tribune says, “Yet for all the sweat that goes into making shoes in Tianjin, the factory payroll is equivalent to $1.30 a pair, 2.6 per cent of the US retail price.”
Should the salary of every worker in the Chinese shoe factory be doubled, the retail price in the US would merely go up from $49.99 to $51 or so.
By keeping wages low without the protection of trade unions, China is in effect subsidising exports. What the flow of cheap Chinese goods through the Walmart direct pipeline from China into India will do to Indian companies, particularly the SMEs can well be imagined.
Even without Walmart, Indian SMEs are being driven out in sector after sector by cheap Chinese imports. For instance, there is no light fittings industry left in India. Same for toys.
One can well imagine what a Walmart pipeline will do to the hosiery and woollen goods manufacturers in Ludhiana and Tiruppur.
The once-prosperous clock-making industry around Rajkot has almost entirely fled to China. Millions of jobs in the semi-organised sector now stand threatened.
Interestingly, in 1985, Sam Walton, the founder of Walmart was forced to say: “Something must be done by all of us in the retailing and manufacturing areas to reverse this serious threat of overseas imports to our free enterprise system. Our company is firmly committed to the philosophy by buying everything possible from suppliers who manufacture their products in the United States.”
Having said all this, one must concede that change is remorseless. The constant displacement of workers by machines and methods is the story of the future.
Textile mills made most weavers redundant, just as robots in automobile manufacturing have rendered many workers as surplus. This is the story in all sectors of manufacturing.
While the future cannot be avoided there is no need to hasten the pain. Big box retail will bring benefits to many stakeholders; not the least being the state, which will see improved realisation of taxes and the construction industry, which will be called to build the new retail centres.
Better quality control and good management methods will spread into other sectors and down the supply chain manufacturers will demand from their suppliers what is demanded of them by their buyers.
Many talk of the revolution in retail, but governments must be more concerned with revolutions forming on the streets.
There are ways of achieving the former while avoiding the latter. Three simple suggestions to tweak the policy on the anvil are:
1. Insist that big box retailer’s be foreign exchange neutral. That is, they export as much as they import.
2. Restrict big box retailers to outside municipal limits and to satellite towns instead of restricting them to within the 53 cities with more than a million people each. This will ease the urban chaos and encourage people to move into less expensive housing outside the big cities.
3. And finally, why put limits on foreign equity holdings? Allow companies like Walmart to own 100 per cent of their business in India. At the same time the government must insist that they bring in foreign loans to finance their entire capital investments in India. This will enable Indian financial institutions and banks to remain within sectoral limits and to extend financial assistance to Indian retailers.
Above all the policy-makers must realise that while it is an American corporation earning profits for its US shareholders, Walmart is mainly a retailer of Chinese goods. Its business model is quite unique.
As Nick Robbins wrote in the context of the East India Company: “By controlling both ends of the chain, the company could buy cheap and sell dear.”
In this case it means profits for the Americans, jobs for the Chinese.
When you think of women shopping, you see images of them haggling with the shopkeeper or standing meek on the other side of the counter.
Be it with the vendors at Sarojini Nagar or a salesperson at some high-end shopping mall, bargaining to save every penny is a trait that has been closely associated with women. But not anymore! According to a recent survey, the average income of urban women has doubled in the last 10 years. With this sort of financial independence and increase in spending power, there is a considerable change in the aforementioned stereotypical image of women and their shopping habits.
For a 53-year-old entrepreneur, Rozita Kapoor, having more money at hand has improved her lifestyle manifold. “Earlier I never used to throw away clothes till they were absolutely worn out, but now, with more money coming in, I sometimes simply discard clothes just because that particular style has gone out of fashion. My style of socialising has changed.
Earlier I used to entertain my friends at home but now, with the pub culture coming in and with more money at hand, I usually take people out to some place nice and we visit the malls pretty often.”
51-year-old Poonam Manaktala works at an editing studio and has shifted from procuring just the bare necessities to buying more luxury items. “In the past, I always looked to purchase the essentials and spend on things where I would get value for my money. I would research and try to get the best deal possible for everything I bought. But things are different when you earn more and have more disposable income. Shopping for me is no more just about paying for the bare necessities. I shop for various luxury items and go in for more branded clothes and accessories now as compared to earlier.”
Some 10 years ago, Poonam Bevli Sahi (painter and graphic designer, aged 50 years) was very cautious of overspending and did all she could to save for her family. But now, cash liquidity has made her a more “fun person”. Says Poonam, “The main difference in my lifestyle now is that I go out way more often. With more free flowing cash, I make sure I do the stuff I really want. For example, various stress-busting activities – I go for spa treatments very often and pamper myself in every which way. I would say I am a much more fun person, and way more indulgent as opposed to earlier when I earned much lesser money.”
Nishtha Arora* is a 28-year-old lawyer and more available funds have made her a ‘flamboyant shopper’. “The basic change in my shopping traits is that earlier, I used to wait for the sales to be able to afford something of my choice. I would hope and pray that that particular dress or accessory wouldn’t get sold out during sale season. But now, I don’t have to hold back as such – if I like something, I instantly pick it up. I’m very fond of jewellery and even though silver and gold rates are skyrocketing, I still splurge on some of the most beautiful earrings and neck pieces. I also spend a lot more on beauty treatments now. I pamper myself with fancy manicures and pedicures, facial and hair treatments and massages.”
One of the proud moments in lawyer, Sakshi Chopra’s life was when she bought a car with her own earnings. Now that she earns more than before, she is glad she doesn’t have to ask her father for money every now and then. “I stay with my parents, therefore I don’t have to take care of the rent or the food. Mostly I indulge in shopping and eating out. What I’m most glad about is that I don’t have to ration my needs because I am shy of asking dad! I recently bought a car and I paid the token amount myself, I pay for fuel and extra accessories,” she says.
Top 5 things women spend money on:
- Branded clothes
- Fashion accessories
- Beauty treatment and spas
- Eating and drinking out
- Gold/Silver jewellery
|Free trade is necessarily anti-people as it leads to low wages. Protectionism can be pro-people if applied correctly.
Commerce minister Anand Sharma has called for countries across the globe not resorting to protectionism to solve their woes due to the ongoing economic slowdown. Sharma is ignoring the growing worldwide backlash against globalisation.
White collar workers in industrial countries are losing their jobs to cheaper workers from India and China. Services such as research are now being outsourced because scientists in the developing countries are cheaper. On the other hand workers in the developing countries are finding that their wages are stagnant while inequality is rising.
The belief was that free trade leads to efficient production and also forces domestic government to reduce corruption. This provides relief to the people. The businessman has to pay money to the local thugs and politicians in a situation of bad governance to avoid trouble.
The government officers have to be paid bribes to buy peace and avoid harassment. For example, a boiler inspector can shut down the plant for 15 days on frivolous grounds if he is not appeased. The money paid to politicians and officers is added to the cost of production by the businessman and he has to sell the cloth at say Rs 25 a metre instead of Rs 20 a metre which it otherwise costs to produce.
The cost of production of similar cloth in other countries having good governance, however, remains low because they do not have to pay money to politicians and officers. The cost of other inputs such as cotton, machines and chemicals remains same in all countries because of free trade.
Cloth produced in Bangladesh will conquer Indian markets if the cost of production in that ‘clean’ country is Rs 20 and is Rs 25 in ‘corrupt’ India. Textile mills in India will have to down their shutters. Ultimately, Indian politicians will have to reduce the money they extract from businessmen failing which they will be killing the hen that lays golden eggs.
The same applies to inefficient businessmen. Say the Indian textile mill makes seven metres cloth from a kilo of cotton while the Bangladesh mill produces ten metres because the looms of the Indian mill are old. Globalisation will force the Indian businessman to install latest looms in order to survive. This will provide good and cheap cloth to the Indian people. Globalisation indeed begets clean governance and efficient production.
The difficulty, however, is that free trade also works in the labour market. Say Bangladesh and India both have clean government and the cost of production of cloth in both countries is Rs 20 a metre. The wage rate in Bangladesh is Rs 150 per day.
The Indian businessman will not be able to pay more than this rate to his workers otherwise his cost of production will increase and he will be ousted from the market. The country paying lowest wages wins in free trade. Free trade leads to equalisation of wages rates to their global lowest levels. This decline in wages nullifies the benefits from good governance and efficient production.
Click of the mouse
No wonder workers in the industrial countries are opposing free trade and outsourcing. The software programmers are finding their wage rate declining as technology makes it possible to transfer huge amounts of data at the click of the mouse.
The wage rates in most developing countries are also stagnant. Workers in East Asian countries are seeing their wage rates decline due to competition from less paid Chinese workers. Free trade works as a two-edged sword. On the one hand it leads to clean governance and efficient production but on the other it leads to lowering of wage rates to their global minimum.
What is the solution to this problem? How can the benefits of free trade be secured while creating higher wages for the workers? Protectionism enables the domestic prices to remain higher than the global prices. These higher prices can be used to support corruption, inefficient production or higher wages. The solution comes from using protection not for corruption or inefficient production but for higher wages.
Suppose India was to impose an additional tax of Rs 5 per metre on cloth imported from other countries.
The price of cloth in Indian markets will become Rs 25 instead of Rs 20 earlier. This margin can be taken away by corrupt politicians and officers; or it can be used to maintain inefficient production in obsolete mills; or it can be used to raise wages of the workers. The ability lays in avoiding the first two uses and promoting the third.
If the government establishes, say, a spy system to trap corrupt politicians and officers; promotes domestic competition to avoid inefficient production; and implements policies that lead to higher wages, then this protectionism becomes pro-people.
Free trade is necessarily anti-people because it leads to low wages even if it provides good governance and efficient production. Protectionism can possibly be pro-people if applied correctly.
What about exports, though? It is possible to prevent cheap imports from other countries by imposing import tariffs. But how will exports be made if the domestic wage rates are high? The solution is to use the receipts from import taxes to provide export subsidies to labour-intensive products. The higher cost due to high wages can be neutralised by the subsidies.
It is clear that free trade will not lead to the welfare of the people anywhere in the world. Protectionism makes it possible to secure people’s welfare but only if applied correctly. But bad protectionism that supports corruption is worse than free trade. The challenge is to embrace good protectionism.
Faced with opposition from its own allies like Mamata Banerjee, the government has shelved its proposal to allow Walmart and other multibrand foreign retailers to have majority stakes in Indian hypermarkets. Critics have accepted the bogus claim that foreign retailers will kill small Indian shopkeepers.
In fact, the Walmart model is a 20th century concept that’s rapidly becoming obsolete in the 21st century. Internet shopping now threatens the hypermarket, which may survive in small towns with low land prices, but looks doomed to becoming a minority player.
In the massive annual shopping spree during the Thanksgiving season (end of November) in the US, 39% of consumers said they bought goods mostly through the internet, against 44% who mostly bought from brick-and-mortar stores and hypermarkets. A small proportion also made purchases through catalogues. The internet proportion keeps rising.
Arvind Singhal, a top marketing guru, says that in Britain, no less than 4,000 megastores have been closed in the last seven months because of competition from e-commerce (internet sellers). That shows what the future holds.
In the US, small booksellers were decimated in the last two decades of the 20th century by large book chains like Borders and Barnes and Noble. But these chains in turn are now threatened by Amazon, the giant internet book-seller. Amazon offers the lowest prices, and also offers second-hand books at steep discounts. Borders has gone bust and Barnes and Noble is desperately seeking a saviour.
The Indian left highlights resistance in many communities in the US and Europe to the opening of new Walmarts, to preserve small shops. They ignore the fact that Walmart has been a saviour of the poor, by increasing their purchasing power. Indeed, while Walmart kills neighbouring shops, the extra money it leaves in the pockets of consumers finances extra spending by them in unrelated areas. This more than offsets the shrinkage of neighbouring shops, according to some studies. These are, of course, hotly contested by Walmart’s critics.
Many US municipalities refuse to allow Walmart to open new hypermarkets because of the threat to local shopkeepers. Yet the real threat now comes from internet shopping, which municipalities are helpless to ban. New technology and convenience are overcoming traditional regulations.
Walmart’s so-called Big Box or hypermarket model will fail in India. The Big Box requires acres of parking space, and so is typically located on the outskirts of a city or in small towns where land prices are low. Even poor Americans own cars and will drive 20 miles to a distant Walmart. But Indian land prices are astronomical even in city outskirts, making low-cost hypermarkets impossible. Only a small minority of Indians has cars, and because of traffic jams they will not spend hours to drive 20 miles to the outskirts of towns for shopping.
Small Indian shopkeepers do not have the discounting capacity of a Walmart. But they often evade sales tax and income tax, which hypermarkets can’t. Consumer theft does not hit small shopkeepers but can hale profits at hypermarkets. India is a world leader in consumer theft.
Thanks to cheap labour, small shops can provide home delivery at low cost. Many shopkeepers know their customers personally and extend them credit. For all these reasons, the aam bania will easily compete with hypermarkets in most locations. If India continues to grow rapidly, after some decades labour will become too expensive for small shopkeepers to offer home delivery. Other developments like a Goods and Services Tax may also reduce their ability to evade sales tax and income tax.
But long before these developments reduce the shopkeeper’s edge over hypermarkets, e-commerce will swamp both. E-commerce is still constrained today by limited credit card usage, but this is expanding very fast. US experience shows that e-tailers may legally escape sales tax. Municipalities cannot ban e-commerce.
The same will be true in India. Fifty million small shopkeepers went on strike to scotch foreign hypermarkets. But neither they nor Mamata Banerjee can stop e-commerce. That’s no disaster. The traditional bania is willing to stand in his shop 12 hours a day, but not his educated children. Just as the children of farmers want to get out of farming, the children of shopkeepers want to get out of retail.
We need economic reform to help them get jobs in new areas. The “Doing Business” studies of the World Bank show that India is one of the worst countries in the world in which to start a new business, get a building permit or get contracts enforced. Reforms to remove these obstacles are even more important than reforms to bring in foreign hypermarkets.