For all the drama surrounding FDI in retail, here are some reality checks.
Big Box Retail works in the US primarily because the stores are outside city limits – resulting in giant sizes and low rentals – that allow the retailer to offer “everyday low prices”. The average American thinks nothing of driving 20 miles to stock up for a week – great roads, cheap gasoline in car-country!
Will we (Indians) drive all the way out of the city, to Big Box stores, to get cheaper stuff?
Mumbai is a mess, so let’s not equate India to Mumbai 😦 But the rest – they could and they should.
For retail to work in India, it needs low rentals (our existing mom & pop retailer – the baniya & kirana stores – operate at low or no rent). Low rent comes from being far away from the heart of town. Customers must then drive to the store. The prices at the store must be low enough to make the drive worthwhile. The roads and access should be easy enough to not make the drive a nightmare. And having driven so far, customers might as well stock up and head back.
Stocking up? That is supposed to be culturally taboo – Indians prefer to eat freshly cooked food every day, etc, etc. But increasing urbanization, nuclear families and working parents are fast becoming westernized – which isn’t necessarily a bad thing.
For now, retail is stuck in the city and hence is bleeding. Allowing FDI isn’t going to solve the fundamental rental issue. What we actually need is better infrastructure – better roads – to realize the retail promise. Better roads will encourage driving, reduce petrol consumption, ignite stocking up as socially acceptable behaviour. And genuinely lower prices will only come from bigger volumes and lower rents.
Meanwhile – even as physical retail reels under the cost burden – online retail can smartly become the leapfrogged alternative. If the “broadband roads” take off, they may well make physical roads obsolete. And online retail suits the Indian psyche better. As a culture, we are totally not DIY. We tend to rely on many support systems and are used to numerous aides and assistants, at home and at work.
So an option that allows you to shop from home, and then have it delivered to you, is actually very similar to our ‘domestic help’ scenario. We can get used to this 🙂
SAMEER NAIR 