Sunday, May 25, 2008

The future of Retail

Organised retail failed to generate economic good for nations

Consulting firm Deloitte Haskins and Sells recently reported that the organised retailing in India is growing at a faster rate than expected! The report states that organised retail would account for almost a quarter of the total revenues by 2011, up from 8% currently. No doubt, this is welcome news for companies that are aspiring to make it big in the retail space. In fact, the market is already warming up with the early movers, as it is evident from the deluge of advertisements in mainstream newspapers and radio channels. In fact, a glimpse at these campaigns and one can easily derive that the retail war is nothing else but a war to attract more footfalls through a ‘low cost’ pitch. And with the big boys waiting in the anvil, this war is seemingly going to heat up further in future.

Irrespective of how much economic good these companies would earn for themselves, one concern that would always remain is how much of economic good can the sector generate for the nation as a whole. It has been globally observed that organised retail by far has failed to deliver towards their respective economies, and the concerns remain the same for India. As a matter of fact, the most universal strategy for successful retail is by itself the villain of peace. And this is the war for ‘low price’ to attract bigger markets. Though starting from supply chain management and a robust technology to back it up can derive lot of cost advantages for the large retailers, it has been observed that invariably most large retailers fall into the trap of a ’low cost syndrome’ to sustain and succeed in the business.

The biggest case in point here is Wal-Mart! It is no secret that even after clocking a staggering USD 380 billion in sales, Wal-Mart pays its employees quite miserably, only to keep their costs low. Not just that, to sustain in business, Wal-Mart has shifted millions of jobs outside the US to low cost destinations such as China! It would not be an exaggeration to state that today, on a visit at any Wal-Mart store, your chances to get an American product is almost negligible. By paying low and farming out manufacturing jobs to China, Wal-Mart may have sustained its position as the worlds number one low cost retailer and has been able to manage a outstanding top and bottom line, but then America or Americans have not benefited from it, even one bit! In fact the truth is, Wal-Mart has grown at the cost of America and its citizens. Not only by paying low wage rates, they have robbed them of their purchasing power but by offshoring manufacturing jobs to China, they have done even worse!!

So when it comes to India, the concern gets further magnified, simply because India houses a large proportion of people who have little or no purchasing power at all. In the given scenario, if a Wal-Mart does happen, and at the pace that Deloitte states, then possibly more than good news, it is alarming!!


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