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| Shobhana Subramanian: Live and let live | | Organised retail helps low-income consumers save more |
| Shobhana Subramanian / Mumbai Jun 19, 2009, 00:21 IST |
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The Parliamentary Committee report on foreign and domestic investment in the retail sector raises concerns that if foreign direct investment is allowed in multi-brand retailing, it would lead to job losses in the unorganised retailing space. In fact it doesn’t even want big domestic players in the sector. However, ICRIER, which did some serious work in this area last year, found no evidence of a decline in “overall employment in the unorganised sector as a result of the entry of organised retailers”. This is despite the fact that almost all the big business groups are now in there—Tatas, Ambanis, Birlas, Bharti Enterprises and now the Mahindras. Pantaloons, Shoppers, Subhikshas, Spencers and others, of course, have been around for much longer. Despite this, if employment hasn’t fallen at all, the presence of big players can’t really hurt. So how the 40 million people who earn their livelihoods from this space and 200 million who depend on it are going to lose their jobs, is somewhat hard to understand.
It’s true that the two million jobs target of the organised sector does sound ambitious — a back-of-the-envelope calculation shows it would take about four-and-a-half times the current space of around 25-30 million square feet to absorb that kind of workforce. That can’t happen overnight but if one considers the investments expected to be made across the supply chain—storage, warehousing and so on—the number isn’t unreasonable because Aditya Birla Retail has created 12,000 jobs in the span of just 20 months. Also, the state governments must allow it to happen, they can’t keep asking big players like Reliance Industries to shut shop.
While it’s true that competition from organised players can to some extent hurt kiranas, the paranoia seems overdone. The ICRIER study, for instance, found that the adverse impact on sales and profits actually weakens over time. In fact it would seem that the kirana model is fairly robust — it’s more the Subhikshas and the Bharti Easy Days of the world that are falling by the wayside. A couple of Big Bazaars too have been shut while convenience stores like TruMart are clearly feeling the pain. That’s a clear sign that kiranas will thrive — after all, they’re closer to their customers, they deliver home and offer credit.
There’s evidence of this in the ICRIER study which found that very few small shops in the country actually close down every year—just 4 per cent which is way below international levels. And under 2 per cent of smaller retail outlets are actually hurt by their organised counterparts, so it’s not as though they’re losing out in big numbers. In fact smaller grocers, especially in the bigger cities, aren’t exactly throwing in the towel; on the contrary they’re becoming more savvy, doing up their shops, stocking more stuff and many of them now have computerised billing. Ask Shubhajit Sen, who heads the marketing at GlaxoSmithKline, makers of Horlicks, and he’ll tell you how important these outlets are and how well they can be used to reach out to consumers. Clearly, there’s no way they can be abandoned.
The clincher is that with big players coming into the retail space, farmers are doing better than ever. ICRIER found that they’re much better off selling directly to organised retailers rather than to intermediaries or to the mandis — believe it or not, their profits are 60 per cent higher. That’s staggering in itself without even taking into account the agent’s commission in which case the difference is even larger. So, it’s surprising that the Parliamentary Committee hasn’t really dwelt on this point especially since it points out that the agriculture sector is the biggest employer in the country. If the farming community’s profits can multiply with the arrival of big retail players, it can’t be that bad. Of course, the three or four intermediaries between the farmer and the retailer will lose out. ICRIER too found that there was some adverse impact on the turnover and profit of intermediaries dealing in products such as fruit and vegetables and even apparel. But it’s hardly fair to deprive farmers of their rightful share of profits, to benefit a few intermediaries.
More so because ICRIER also discovered that low-income consumers save more than others when they shop at organised retail outlets because they target discounts. So if the less well-off are getting a better deal, there’s something to be said for organised retailing; the existing model is obviously not as appropriate as the Parliamentary Committee believes it is.
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