China leads the pack of Wal-Mart’s most preferred suppliers. The phenomenal growth of Wal-Mart is based on the laissez faire concept which is at the heart of US consumerism. It gives run for money to other retailers. Its strength is the gang of bargain hunters, who give a damn to manufacturing labels or supply sources as long they are affordable and less pocket-pincher. The US of A, the world’s richest economy, can afford Wal-Mart. US dollar is one of the world’s most preferred currencies. The question is: can India with all its present economic and currency weaknesses afford to ape the model now?

The answer is: an emphatic ‘no.’ First of all, the argument that the permission to MNCs to get into multi-brand retail business will open a floodgate of foreign direct investment is totally wrong. Conversely, it will open an import floodgate of items from sewing needles, nail clippers and candles to kitchen wares, home decors, luxuries and what-have-you, draining out billion of dollars in precious foreign currencies year after year. Even fruits and vegetables, grains, processed foods may be imported into the country if such imports work out to be cheaper than the domestic produce. Cheaper Pakistani red chilli, Bangladeshi and Pakistani readymade garments, Lankan, Indonesian, Chinese and African tea, Thai bananas, Philippine pineapple, Chinese broccoli, Vietnamese coffee and Thai rice may change the very look of the display racks of retail stores in India and, with them, the fortunes of traditional Indian farmers, small industrial enterprises, self-help groups, artisans and small traders.

Secondly, India’s economy is simply not ready to face the onslaught of multinational retailers on its business territory, which is still primitive in many areas because of the years of government and social neglect. The country has neither the adequate amount of money, nor the infrastructure, technologies and skills to evenly face those specialized supplier-exporters from other parts of the world. Unless multinational retailers are served with entry-level restrictions on dealing with imported products, or slapped with domestic procurement obligations, or their operations are made export-linked, the country will find it difficult to sustain the luxury of multi-brand retailing by MNCs. India’s retail market is its economy. It can’t be surrendered to MNCs. The latter are most welcome if they want to grow this economy by investing in domestic production and procurement and share the fortune, in the process.

Multi-brand retailing business is tough. Even sound economies with pots of money, strong currencies and ready markets are not finding the going easy. Last year, the global ranking of the Russian retail firms industry dropped from 15th to 107th, China’s from 63rd to 90th. The worldwide, retail firms go bust faster than manufacturing entities. Last two years have witnessed a big upheaval in the western retail industry mainly due to recession. The industry rankings dropped like hot potatoes. And, wild-card entries made big gains. The UK’s largest retail chain, Tesco plc, lost its long-held 3rd position in the global ranking to Germany’s Metro AG in 2010. Emerging multi-brand retailers are from Norway, Lithuania, Spain, Finland, Chile, South Korea and Brazil.
Multi-brand retailing are placed generally under three categories – hypermarkets, supermarkets and discount stores (exclusively for low priced items). The hypermarkets category boasts the largest number of chains. A typical hypermarket outlet has at least 150,000 sq. ft. floor space and non-food merchandise occupies 35 per cent of the floor space. Supermarkets are the next. Some 64 out of the world’s top 250 retail chains fall under this category, which also displays low-cost private brands, semi-processed and pre-packaged foods focusing on value. Globally, China is the biggest suppliers to supermarkets. Some of the best known retail chains are: Wal-Mart, Carrefour of France, Metro, Tesco, Groupe Auchan of France, Shinsegae of South Korea and Groupo Pao de Acucar of Brazil.

India’s uncomfortable foreign exchange position, large trade imbalance, low level FDI in manufacturing and its soft currency hold against the argument in favour of foreign entry in the multi-brand retail business. The first half of the fiscal 2010-11, for which official financial data are available, showed the FDI into the economy dropping by 55 per cent to only $5.3 billion from the corresponding level ($12.3 billion) in the previous year. The trade deficit (BoP) during this period was $67 billion. During this period, India’s external debt jumped by 12.8 per cent to $295.8 billion. Against this backdrop, the country’s foreign exchange reserves were estimated at only $ 299 billion, which include a hot money flow of 24 billion by way of portfolio investment, mostly by FIIs, during this period. The foreign investments in the volatile secondary market showed a big jump, by 33 per cent from the level of $18 billion in April-September, 2009. Financially, this can hardly be regarded as an appropriate time to invite FDI in domestic retail trade, which will soon lead to an additional drain of foreign exchange by way of imports and repatriation of profits and royalties.

However, this is not to deny the importance of the organised retail trade in modern economy. In fact, there exists a great opportunity for India’s domestic companies, especially large business houses, in the organised retail business to grow and help create strong local brands as it is happening in China, Brazil, Finland, Lithuania, South Korea and Spain. Fortunately, this is happening in India as well. The trend promises a big boost to the Indian economy. Domestic suppliers to these local retail chains, which also display limited quantities of import brands, are realizing the value of product quality and branding and investing in technologies, packaging and transportation. In many cases, retailers themselves are going in for backward integration through direct investments in manufacturing, processing, packaging and private branding or creating dedicated suppliers. The business is fast catching up, especially in metro cities such as Mumbai, Kolkata, Delhi, Chennai, Bengaluru, Hyderabad, Ahmedabad and spreading down into mini-metros and state capitals.

The Indian multi-brand retail chains such as Shoppers’ Stop, Pantaloon, Big Bazar, Spenser’s and Westside have become household names while the stores like Foodworld, Reliance Retail, More, Wills Lifestyle (Landmark), Crossword and Globus are fast spreading across the country. The business is still at a nascent stage. Not all entrepreneurs are making big money. With property rates in India shooting up, the companies are finding it difficult to acquire right sized properties in right locations – the most important part of investment for the success of the business – at viable cost. The only role the government may be advised to play to boost the retail trade and investment is to help this new domestic multi-brand retail firms with some incentives to become global players themselves. If the Moroccan retail chain, Mango, can come to India to do a profitable business with imported women’s wear from Morocco, Indian retail chains too should find their moorings in Morocco or Malaysia carrying Indian brands in their train before Wal-Marts and Carrefours and Tescos of the world are given supermarket license to operate in India. (IPA Service)