In the Central Square area of Cambridge, MA is a store called Economy Hardware. It’s reasonably small but big enough to stock a pretty solid range of the sorts of basic home-wares – furniture, lamps, accessories, kitchen goods, bookshelves, rugs – that your average new-to-campus student needs. It is well-located to cater to the needs of such students, being but a hop and a skip away from the eastern end of the MIT campus and only a bit further from an area full of apartments shared by students at Harvard, MIT or one of the many other colleges in the Boston area.
Yet ask any a student from India or another developing country about Economy Hardware, and the kind of response you get will quite likely depend upon the length of time they have spent in the US. For new arrivals, the existence of Economy Hardware is a god-send. You don’t need a car to get there; pretty much anything you need is there; and, well, it’s a bit expensive, but this is the US, right? Those who have been around a bit longer are instantly dismissive. “Have you seen what they think they can charge for a floor lamp? You know you can get to IKEA on the commuter rail, right?” These students have discovered a fundamental fact about retail in America: to get the deals, you sometimes need to travel. But oh, the bargains…
A file photo of a supermarket
The reason I bring this up is that the IKEA-Economy Hardware comparison captures an absolutely fundamental facet of the way people make choices about when, where and how to shop in most parts of the world which somehow never seems to make it into the discussion about big-vs-small, foreign-versus-local debate about retailing in India. In a very basic sense, people need different things from their retail outlets at different times, points in their lives, and so on. Poorer people will probably value low prices over much else (there is a reason why poor people in America bristle at attempts to wean them off McDonald’s – it’s cheap). Others may value other attributes more, at least some of the time. A retail economy that allows stores to specialize in serving different niches of the market is more likely to provide all of them with what they need at any given point in time.
So yes, in certain situations you value the local grocery store (a “kirana store” in India, much like the “bodega” in New York or the “corner shop” in England) because it stays open late and has the basics available for those days when you don’t mind paying a bit more for the milk as long as it’s easily accessible. But you also value not always having to buy smaller bottles of overpriced milk and being able to economize on your weekly shop by going to a big chain store. As dehumanizing, sterile, vast, alienating and anomie-inducing as big mass-market chain stores and supermarkets may be, they tend to offer better value – because that is their raison-d’etre – than smaller stores can ever hope to. Yes, farmers’ markets are lovely to browse, before you head off to the supermarket to buy food that isn’t as beautiful and local but is also less likely to make you feel like you spent a small fortune. More seriously, though, it seems odd in the Indian context to rule out the mass-market option that may lead to lower prices in general in a country where the majority of consumers have low purchasing power and are likely to value low prices above all else.
All of which makes me wonder about several inconsistencies in the arguments put forth by some who oppose opening up the retail sector to foreign investors. For instance, some argue that all this talk of supply-chain efficiency and therefore lower prices is nonsense. Even setting aside all the years of experience with organized retail in other countries and basic economic arguments about the imperatives of competition and economies of scale, let us assume that this is true. In this case, small shopkeepers in India have nothing to fear, right? So why make a big fuss about big retail? It’ll probably only ever be a niche player, and the kirana shop will be laughing all the way to the bank.
Or maybe the proponents of big retail are right and these organized players really will be a lot cheaper. But if the Indian consumer values low prices over all else, then surely she would want the big guys to drive the local shopkeeper out of business? Of course, the true picture is likely to lie somewhere in the middle. Like shoppers everywhere, Indian shoppers too will value price above all else for some things some of the time, and convenience or home-delivery for small purchases at others. Given that it seems likely that poorer consumers will value price over everything else, it seems particularly perverse to deny them a chance to get what they want. But our political class is very good at talking about and at the poor than paying any attention to what they actually want.
Saugato Datta is a development economist and journalist. He has been a researcher at the World Bank, an economics writer at the Economist, and is now Vice-President for international development at ideas42, a behavioral-economics research and design lab based in Boston.