The small-store owner is too important, nimble and innovative to be bumped off by big-box retailers in India.

Kirana RIP? Not Yet.

The arguments for and against FDI in retail are, at a generic level, valid on both sides. However, since the devil is usually in the detail, the facts about India’s small retailers and suppliers, the conditions stipulated for FDI, and recent experience with the effects of domestic modern retail need to be viewed together before the likely outcome pronounced. The big fight is about whether this new policy will kill small shops, massively destroy livelihoods and take away GenNext’s opportunities. Facts suggest otherwise. Consider the kirana, the one most feared to be at risk. About 5-6 million of the 8 million FMCG-stocking kiranas are in rural India, and are totally safe, as the new ones can only come into the top 53 cities.

R Sriram, founder of Crossword and retail expert, tables two insights. One, in many big cities, kiranas are already not participating in the growth offered by the newer settlements like Gurgaon or Powai, because without their advantage of historically-priced real estate, they are not viable. Two, increasingly, small shopkeepers’ children are getting better educated and want to exit ‘sitting in the shop’ as soon as possible, just as small farmers’ children are exiting farming. Sadly, the country’s retail density has been increasing in recent years, not driven by passion or profit, but because of lack of options — hopefully that will change. It is true that traditional income streams of small shops in the vicinity of a large supermarket plummet; but we have seen that they soon recast their business model, exploiting the inherent advantages they have that the supermarket cannot emulate: free, prompt and no-conditions home delivery, superior and customised customer relationship management, khaata- credit and willingness to stock small quantities of something used by only a few people in their catchment — a classic ‘long-tail’ strategy. Notice two more things: even in upper-class areas in large cities, despite large retail chains in the vicinity, the small vegetable vendor and kirana continue to find a place in the household’s shopping basket. The kirana also continuously morphs, and is already moving to a more specialised and selective portfolio. We will find them variously choosing to become more of a convenience store (7-Eleven-type), or fresh-food store, a home-delivery store, maybe even express-format franchisees of large retail, and so on.

Another reality check: how much consumption capacity do even the top 50 cities have? Seriously, how many more Ikea, Zara, Walmart, Tesco and Best Buy can a Surat, Kanpur or Indore absorb, in addition to more Big Bazaar, Megamart and Croma? Further, foreign specialty retailers targeting the rich consumer will create never-before custom, and not at the expense of existing shops. Two decades ago, we had the same hue and cry that Indian brands would be wiped out; but they got better and bigger than they would have had they been left unchallenged. Now for the suppliers. Large suppliers will lose the pricing power they had with small retailers and nobody on any side of the FDI debate is grieving for them. Small suppliers, even without FDI, are being mercilessly squeezed by middlemen. The hope is that large retail chains, unlike the broker middleman, have more incentive to pay more because they have customer loyalty and a brand to build; in exchange for steady, loyal, consistent quality supply, they will pay more, guarantee offtake, improve product and production efficiency. The FDI norm of at least 30% sourcing from small scale pushes this further. Walmart potentially could kill the small suppliers of anything by importing 70% from China cheaper; but loads of small traders are already doing the same, flooding our markets with Ganesh murtis, chappals, clothes, watches, etc.

The Achilles’ heel for a lot of skilled artisans, specialised producers, grass roots innovators, etc, is market orientation and marketing. Producer collectives have managed to organise themselves on the supply side using government assistance schemes, but they struggle to manage the demand side. That is the missing link that large retailers in vendor development mode can provide, just as the auto industry has done to ancillary suppliers. Both sides agree that customers will gain because large chain retailers can provide better for cheaper, given the discounts they get through buying large quantities and sourcing smartly. Customers will also get a wider range, more innovative products and more comfortable, truthful and informed shopping environment. Poor customers won’t get discriminated against, because the hypermarket is anonymous, transactional, classless and nonjudgemental. They may not get better service because the small Indian retailer is the champion of good service, from atta to electrical, the likes of which we haven’t yet seen any big retailer match, anywhere in the world. That’s another reason why he will always survive.

Before we fight further, consider this. This network of commercially-savvy supplychain linked small retailers is an invaluable asset: as one report said, they are not ‘unorganised’ by any stretch of imagination; we agree and have refrained from using this phrase in this article! It is unlikely that Indian jugaad will let this network disintegrate. Perhaps in rural India, where they would have been more hard hit had the big-box retailers been allowed, they would have been garnered by banks as new extension counters for financial inclusion. RAMA BIJAPURKAR INDEPENDENT MARKET STRATEGY CONSULTANT


Arvind’s retail chain in pact with US firm

MUMBAI – Arvind Ltd’s retail chain Megamart has entered into a licensing pact with U.S.-based Cherokee Inc, under which the Indian firm will market Cherokee’s family lifestyle brand across the country, officials said.

“Arvind has been a specialist in men’s brand in India, through this agreement we are planning to tap the women and children’s apparel market in a big way,” Megamart’s chief operating officer K.E. Venkatachalapathy said at a press meet.

Megamart, which sells multiple brands at discount prices, will sell the products at a variety of prices points across Tier 1, 2 and 3 cities, he added.

Megamart is expected to contribute about 3 billion rupees in sales, or roughly 15 percent of Arvind’s total turnover, in 2008/09, Venkatachalapathy said.

Cherokee will occupy 20-25 percent area of a typical small-format Megamart store, which has an average area of around 3,000 square feet.

For its large-format stores which occupies between 40,000 to 60,000 square feet in area, Cherokee will take up about 5 percent of space, Venkatachalapathy said.

Megamart currently has 110 stores across India, which the company plans to raise to around 250 by March 2010, he said.

“We hope to hit 500 stores in the next 4 years,” he added.

Arvind is investing an additional 3 billion rupees on store expansion over the next three years, Suresh J, Chief Executive Officer of Arvind’s Brands and Retail Division said. It has already spent 1 billion on its retail expansion.

The entire amount would be raised through internal accruals.

Arvind had seen a softening in property rentals in the past three months and was expecting a further drop in prices, he said.

“Being a value for money model we do not go to any developer who sells beyond 35 rupees a square feet because if the rentals are higher than that we may not be able to give full value to the consumers,” Suresh said.

Inflation a blessing in disguise for retailers.

Everyone loves a good discount. And it comes in as an incentive especially during times of inflation.  For apparel discount retailers, inflation has proved to be a blessing. Arvind’s branded discount retail  chain Megamart has seen an improvement in walk-ins of 15% in the past few weeks.

“During inflation, customers always prefer to shop in a value retail outlet,” says KE  Venkatachalapathy, business head of Megamart. The increased footfall is reflecting in the sales  figure of Megamart as well. While he refuses to divulge exact numbers, Venkatachalapathy says  there has been a 20% increase in sales compared to the corresponding period last year. Discounts  here vary from 10% to 30%.

“Inflation and discount retailing are directly proportional. Customers normally tend to flock to value  retail stores where they are assured of good quality at reasonable prices,” says Raghunath  Narayanan, MD of Chennai discount retailer Europa.

Discount retailing, a post World War II phenomenon, is an established market practice in countries  like the US. This concept is now picking in India, which is a price sensitive market. Discounts have  always worked well with apparel and factory outlets in the suburbs of many Indian cities and shopping  hubs like Fashion Street in Mumbai and Marathalli in Bangalore which acquired sobriquets as an  export market bear testimony to this. Now inflation has come to the aid of retail majors.

The Loot, a discount chain, has seen footfalls increase by at least 10% in the last few weeks across  its 35 stores in 15 cities. “In Mumbai alone, our footfalls are up by 17% in the last three weeks. In the  first quarter, we had sales of Rs 15 crore. In the next quarter , we expect this to climb upto Rs 25  crore,” says Jay Gupta, MD of The Loot.

In apparel, children’s wear seem to be the biggest beneficiary. “As children, especially toddlers.  Normally outgrow their clothes pretty fast, parents are flocking to discount stores such as ours more  than ever before,” says Narayanan. While the discount offered by the apparel and luggage chain is  between 25 and 30%, in kids wear it’s 30%- 40%.

The consumer base is also widening. “From a largely middle class audience, I now see people  getting out of cars like Honda Accord and Mercedes Benz outside our stores,” says Gupta.

The rush to such outlets is also due to the fact that regular apparel retailers and multi-brand outlets  mostly offer off season sale only twice in a year. “But in times of inflation and continued price rise, the  consumer is looking to cut spends across categories on a daily basis,” says Venkatachalapathy.

Brand Factory too has seen a 5%-7 % increase in our sales over the past few months. “While we  cannot say that entirely due to inflation, we cannot rule out that it has played a role,” says Vishnu  Prasad, CEO of Brand Factory. 

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