Last Tuesday, I wrote a post on Indian retail sector-‘R’ stands for: Reliance, Retail, & Rising!. In this post I will try to make a comparison between the organized retail sectors of India and USA and address some important issues related to retail stores.
- Retail industry is the second largest industry in USA, both in terms of the number of employees and establishments. The total income generated by the industry is $3.8 trillion and if food services are included, then the figure becomes 4.2 trillion. The retail sector of the US is the largest in the world. Wal-Mart is the largest retailing company in the world. Its annual income is more than $312 billion. Its chain stores are situated in many of the big cities around the world. It employs 1.3 million people in USA and 500,000 international employees. In the second place is Carrefour, a French company.
- In 2006 the retail sales will have a 4.7% growth. This is lower compared to the 6.1% of 2005.
- Automobile, gas station, restaurants will not see any rise in sales this year.
- In addition, the Federal Reserve will play a big role in the rise of retail sales.
Below is given some data on Indian Retail sector that I have collected from various sources:
- Forbes says that Indian retail sector is now a 200 billion dollar industry and most of the business is controlled by small shops.
- In “Retail Reality,” Prashant Salwan says that consumer market will be the next big thing in India. I am quoting from the article:
"Over the past few years retail sales in India are hovering around 33-35% of GDP as compared to around 20 percent in the US. This suggests that even if the retail sector grows more than the GDP, the difference won't be much as the Indian consumer is already spending a sizeable amount on retail items. If we expect the compounded annual growth rate (CAGR) of the economy to be 6.5 percent till 2025 (which in itself is an optimistic figure), we should not expect retail to grow by more than 7 percent (at which time, retail sales will be 40 percent of GDP)."
- Prashant forecasted an annual growth of 15% for the retail companies. By 2025 these companies will control one fifth of the Indian retail market which would worth $159 billion. Now, if any Retail company controls even 10% of this $159 billion market, its revenue will not cross beyond $16 billion. Still, I feel that it is attractive for companies like Wal-Mart.
I came across a research paper titled, ‘Wal-Mart and the Politics of
American Retail,” written by Zachary Courser. Although old, the research paper provides some valuable insights about major problems, created by retail organizations like Wal-Mart in USA. I found it useful because the organized retail sector is still very small in India, as it would grow bigger in near future, it would also face these problems.
Till the late 19th century, the conception of organized retail sales was absent in America. It was like the present day Indian retail sector; dominated by small local shops and small business men. In the 1890’s, big departmental stores were built where consumers could have numerous range of goods. Also, the stores’ appearances were very attractive to bring in customers. Immediately, these departmental stores faced serious oppositions from small businessmen because these big stores started to destroy their business. I am quoting from the research paper:
“……………the battle quickly took on a moral character. In the eyes of many, it was not just small businesses that were in peril, but the American way of life itself. Said one retailer, the “big store removes much in the matter of independence for men and women in small ways, and compels a dependence which, while it may give more money to the fortunate ones, renders them subject to a central power which in time becomes a tyranny which will leave no boundless America offering homes to the oppressed.”(P-5)
Indian retail market is on the threshold of the above mentioned situation. If the big retail companies really start to take over the Indian retail sector, it would hurt the small businessmen. Then what these people would do? This is really a serious question as many families in India depend on the meager earning of a small shop. So, businessmen like Mukesh Ambani and others should assess the possible damages of their retail projects and take proper measures to compensate for those damages. Indian government has to contemplate on this matter very seriously too.
I would end my discussion with this statement- Every thing in this world has its merits and demerits. It is true that the rise of retail organizations would yield many positive results for India, such as, creating more jobs, bringing numerous goods to the consumers at a reasonable price and so on. On the contrary, there are demerits as well, which are unavoidable. However, if proper steps are taken then the demerits could be brought to a minimal level.
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