Changing dynamics of retail industry

Big company retail stores can give a boost to local retail segment
Changing dynamics of retail industry
Representational Pic

While routinely browsing for latest news updates during the day, I found a statement of Jammu Chamber of Commerce and Industry (JCCI) dominating the local media headlines, calling for a complete Jammu Bandh on September 22 (Wednesday) to protest against the proposed move of the government to open 100 Reliance stores in Jammu. The Chamber has expressed resentment over the proposal of big companies opening stores in Jammu, saying that if this happens, small businesses will be affected and many shops will shut down.

Before deliberating upon the JCCI-scheduled Jammu bandh against big companies such as Reliance opening stores in Jammu, I am reminded of a countrywide wave of opposition when the Central government in 2011 announced to open India’s retail sector to foreign companies. The protestors, parliamentarians, and various commentators, political as well as economic commentators, joined the chorus to oppose the foreign direct investment (FDI) in the retail sector in India. Their common plea was that the decision will destroy the livelihood of crores of small retailers countrywide. As far as our region (J&K) was concerned, the FDI in the retail sector was projected as a move to render a vast chain of retailers operating across our towns and villages out of business. Fortunately, the protests against the FDI failed to impress retailers and over a period of time permitting FDI into the retail sector proved a fruitful decision for the businesses.

It’s pertinent to mention that globalization made economic boundaries irrelevant and FDI serves as a key to reap its benefits. Through this mode, businesses across various boundaries have been getting easy access to new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and of course financing. Today, FDI in the retail sector is serving as a source of strong impetus to the economic development of the country. In fact, FDI has been an opportunity for our businesses, particularly small and medium size categories to become more actively involved in international business activities and garner more and more business opportunities.

Let me share the data from the Department for Promotion of Industry and Internal Trade (DPIIT), revealing that Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totalling US$ 3.47 billion during April 2000-March 2021. Statistics reveal that India is the world’s fifth largest global destination in the retail space. In the FDI Confidence Index, India ranked 16 (after the US, Canada, Germany, United Kingdom, China, Japan, France, Australia, Switzerland, and Italy).

As far as retail market size goes, a Forrester Research in 2020 merits a mention here. It has found India's retail sector estimated at US$ 883 billion, with grocery retail accounting for US$ 608 billion. The market is projected to reach ~US$ 1.3 trillion by 2024. Besides, revenue of brick and mortar (B&M) retailers in the country increased by Rs. 10,000-12,000 crore (US$ 1.39-2.77 billion) in FY20. Direct selling industry is expected to be valued at US$ 2.14 billion by the end of the current fiscal.

The point in highlighting the above facts and figures is that allowing FDI in the retail sector proved a shot in the arm for retail businesses in the country. We haven’t seen any loss to retail entities in various business segments. In fact, in the last one decade, a lot of success stories in the retail segment have been scripted. According to a Retail Industry Report by the India Brand Equity Foundation (IBEF), the retail industry contributes over 10% to the country’s gross domestic product (GDP) and around 8% of the employment.

Now coming to the expansion of big company stories to small places in J&K region, particularly in Jammu province. Frankly speaking, if we take FDI experience into account, the fears expressed by the local Chamber that the emergence of multi brand retail stores will eliminate small scale shops out of business is not founded. In fact, it’s an opportunity for local retail business entities to pick up one or two lessons from the big company stores to fall in line with the changing market dynamics and deliver professionally while dealing with consumers. Since these big retail chains do not have sufficient consumer knowledge in the region, the local businesses can explore opportunities to enter into strategic alliances with them for long term mutual benefits and improved customer convenience.

In nutshell, with proper checks and balances in place, the big company retail stores can give a boost to our local business environment. Consumers will get a wide variety of quality goods at reasonable prices as they will be able to shop best national and international brands under one roof. Those who oppose it need to understand that the ultimate benefit of these chains of stores in our retail sector is going to benefit the common masses. I don’t think that the move will lead to big company retail stores wielding great power over smaller and weaker economies and can drive out local competition. However, they need to be cautious that growth of the retail sector doesn’t lead actually to creation of jobs somewhere else.

If we look at the journey of the retail sector, we find many of the changes in retail and e-commerce have both influenced changes in human shopping behavior and subsequently been influenced by these same changes. It’s a common observation that with changing times, people’s way of life and needs change, and so too do the way they shop and what they choose to buy. In the given scenario, it’s better to be part of the changing retailing system rather than remaining aloof to the competitive environment. Businesses with focus on customer’s shopping convenience, be it competitive pricing or variety of goods across sectors, will remain in business.

Meanwhile, retailers in the brick and mortar segment cannot ignore e-commerce as more than ever, the ease and convenience of shopping online has become attractive to consumers. In fact, e-commerce is having a huge impact on the retail sector.

However, there is a consumer segment which still feels comfortable to visit the retail stores physically and the bulk of their goods at the store itself. This segment is not shy of making purchases online, but they do it for specific products. Precisely, the point is that brick-and-mortar shopping still has a life and isn’t going away. But e-commerce has emerged as a complementary experience for the consumers. So, the mantra is to offer retailing with a mix of the two: offline as well as online shopping facility.

In a nutshell, it’s not time to protest against initiatives to improve the retail industry in the J&K region. There is a need to adapt to the changing profile of the retail industry with focus on the improved consumer convenience. Government has already contemplated certain measures to revolutionize the retail industry. If reports are to be believed, a change in FDI rules in some sectors in a bid to permit e-commerce companies and foreign retailers to sell ‘Made in India’ consumer products is on cards. It has already allowed 100% FDI in online retail of goods and services through the automatic route. Notably, retail and wholesale trades have already been included in MSME segment and accorded the benefit of priority sector lending under the RBI guidelines. So, it’s time for the local retailers to reap the benefits and extend the shopping experience of international standard to its consumers. Don’t shy away from the change for betterment.

(The views are of the author & not the institution he works for)

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