Unorganized Retail in India

Retailing in India is predominantly unorganized. According to a survey by AT Kearney, an overwhelming proportion of the Rs. 400,000 crore retail market is UNORGANISED. In fact, only a Rs. 20,000 crore segment of the market is organized.

We are known as a nation of shopkeepers with over 12 million, the highest outlet density in the world in the world with an estimated turnover of $ 200 billion. However a disturbing point here is that as much as 96 per cent of them are smaller than 500 square feet in area. This means that India per capita retailing space is about 2 square feet (compared to 16 square feet in the United States). India’s per capita retailing space is thus the lowest in the world. Another point to note is that only 8 % of our population is engaged in Retail whereas the global average is around 10-12%.

Traditional retailing has established in India for some centuries. It is a low cost structure, mostly owner-operated, has negligible real estate and labour costs and little or no taxes to pay. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. However this is set to change with the entry of the corporate sector into the retail domain.

The question that is being discussed, given the corporate onslaught with big bucks and deep pockets, what will be the impact on the traditional mom and pop store? Will they survive this or will they fold up and leave the field only to the major organized retail players?

The answer could be a co-existence. The major advantage for the smaller players is the size, complexity and diversity of our Indian Markets. If we look at the organized retail players, most of them have opened shop in the Metros, Tier 1 and Tier 2 towns. Very rarely do we find organized players in the rural areas and we have more than 70% of the population living in the rural areas.

So what could be the scenario? One of the fallouts of the organized retail onslaught would be that the smaller stores in the areas where the majors operate could get squeezed out. The superior purchasing power of the majors and the volume of business generated can result in lower prices thus moving the custom away from the traditional store to the organized retail. The customer loyalty today is towards the price. This fear has manifested itself in Metros, Tier 1 and Tier 2 towns by the unorganized retail staging strikes against the majors and trying to influence Government policy toward the retail majors and making it difficult for them to operate. In UP, the Government has banned organized retail major based on the demands of the unorganized sector. While this may happen in the short run, in the long run the majors will come back and cannot be dislodged. The rising disposable income of the techies today, who having been exposed to top of line retail outlets in the foreign countries, will sooner or later generate a demand for the same facility. At this juncture, the majors will step and service this need.

Another factor that is to be considered is that data on income distribution of households is insufficient in determining market size for different consumer products in India. This is because of the lack of homogeneity of the consuming class and the varying prices of a single product in different parts of India. For example, vegetables generally cost more in Mumbai than in Chennai, hence vegetable-purchasing power for identical income groups would be different in the two places even though they are the two biggest cities in India with comparable populations. In other words, purchasing power is location-specific, not income specific. Consumption habits of households are therefore better determinants of consumer market size than income distribution.

Another factor in the favor of the unorganized retail in rural areas is our mindset. Organized retailing also has to cope with the middle class/rural psychology that the bigger and brighter a Sales outlet is, the more expensive it will be.

Given the above, it is too early to predict the erosion of the mom and pop stores in India. This is also proved by countries where Wal-Mart the world’s biggest retailer operates. The smaller stores have a peaceful coexistence in these countries with the number one company in the fortune 500 list.


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