India’s big retail dreams may still take some time to see daylight. These days no one mentions the threat from big operators to the livelihood of small players. Instead what is being talked about is miscalculations, rising costs and few buyers.
The facts are plain enough. Biggies such as Wal-Mart Stores Inc. won’t open shop until 2009. Others have quietly scaled down expectations while some have even shut shop. (See story on Page 1). In a stoic moment, Kishore Biyani, chairman of Pantaloon Retail India Ltd, said: “I was an eternal optimist; now I have become a realist”.
What is the source of this newly found realism? Is it the economic slowdown — in which case it’s just a small hurdle — or are there more serious limitations to retail growth in India?
Slower economic growth is less likely to be a fundamental cause of this re-evaluation. A look at the Index of Industrial Production (IIP) numbers tell another story. In the April-June quarter this year, IIP grew by 5.2% compared with the 10.3% in the same period last year. Even in this overall gloomy scenario, consumer durables — the mainstay of the retail sector — grew by 8.5% compared with the 9% growth in the same period last year. Moreover, this is a continuing trend. After the lows of October 2007, consumer goods production has continued to be robust.
As a result, the more likely problem is with assumptions that fuelled retail dreams. The retail sector clocks $350 billion a year — a figure that was expected to double in the next seven years. Behind this calculation were assumptions such as Indians wanting foreign brands at any price and uniform and standardized products being preferred by consumers to local, uneven, produce. These have not proved to be robust. Local tastes, preferences and choices do matter. That, however, is the strength of local, “mom and pop” stores and not big chains.
Equally, this is not an argument that big retail can’t succeed: It can. After all, economies of scale and well-knit supply chains have created magic in case of Wal-Mart and Tesco in the West. There is no reason why that cannot be replicated here. It just requires more careful planning and less dreaming.
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