Sunday, July 29, 2007

Big Retailing - opportunities and threats ?? Indian context.

Retaling is a great business opportunity. For centuries we have had small businessmen selling their wares and provisions in villages, towns and cities and making a living. There are millions of them across the country. The breadwinner of these million households work on sub optimal efficiencies to manage the expenses of households and lead a moderately decent life. This disaggregation often necessitated by distances and times is ablessing factor for majority of Indians.

The big time retailers like Walmart, Tesco and so on, work on aggregating the geographically dispersed entities and provide economies of scale in purchase, transportation, storage and sale. Here is now they work.

Procurement : The big retailers are able to procure from cheap vendors in different parts of the country or for global sourcing vendors, from different countries leveraging on the cheap labour and availability of natural resources.

Transportation : They transport in containers and use multi-modal transport, plan for the most efficient mode of transport and thus leverage on the availability of cheap bulk transportaton modes.

Storage : Planning for centralized storages at critical and central locations, can help save costs of spreaded warehousing, security, inventory in these warehouses, though finally in case of damage, the extent of damages is more.

Sale : Having limited number of outlets offering good quality goods, at lower prices offsets the problems related to the geographic spread of the stores and the related travel. The retailer shelf is the final point of access for the end customer, the performance metric of fill rate is paramount over the geographical distance trvlled to reac this retail outlet.

Being big players, Walmart can armtwist their smalltime vendors into agreeing to lower prices for products. On the vendor's part, he is assured of volumes and less marketing effort and may eventually give in to the big retailer, even if it means lower margins. Vendors with excess capacity usually agree to this setup easier as it also assures them of optimal utilization of their capacities. Vendors planning to hit it big, will accept these conditions as they are assured of steady markets and growth of the industry, even though it means less returns over some extanded period of time.

The opportunities big retailing holds in the country is terrific. We are a country of 1.2 billion people and about half of them are in the major villages, towns and cities. The logistics advantages associated with these big retailers serving these urban customers translates into quick and large returns by way of profits and lower costs.

When the highly efficient big retailers establish themselves in the market, the conventional less eficient small players are wiped out of the market. These marginalised, dispossessed sections of the populations have to go through tough times, individually and for their families. But the flip side of this dispossession is the opening up of opportunities to set up service centres / providing small logistics supporting facilities etc to the majoer players and thus helping in the overall efficient management of the retailing sector.

The threats associated with the big retailers is the wiping out of conventional and ancestral occupations and acceptance of novel and often unheard methods of livelihood. Like a farmer moving out from farming to providing logistics support by way of transporting goods, foodgrains etc, to helping the vertical integration of the big retailer by going back to the farm and growing the produce and be assured of greater returns than what was being earlier offered to farmers by the middle men. Evenhouth this may not be a great threat altogether, the fear of change, for whomever it is, either the big retailer or the small vendor, is painful.

After our study here, we arrive at the conclusion that opportunities are greater than the threats associated with the entry of big retailers into the Indian markets. It can otherwise be summarised as the benefits of aggregation over disaggregation, the benefits of centralised operations over decentralised operations, the benefits of centralised logistics over decentralised logistics.

Under the watchful eye of the customers and the goverment regulating these players in issues of labour employment, remuneration, fair prices to the producers and fairness in dealings, the entry of big retailers can be made beneficial for the whole economy.


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