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These concepts have been followed in the United States and Canada for umpteen years. People in the West buy a brand and prefer a store where they are confidant that customer service is good. The same concept will unfold in India as the Indian consumer matures. Eventually, people will be falling over each other to get a particular item at a particular location.
Customer service is not a hard concept to understand and follow. It brings repeat customers as well as new ones as success stories spread by word of mouth. Copy this concept in India and it will bring customer loyalty. It is a win-win situation. More importantly Indian merchandisers will gain tons, both in higher profits and popular name brands.
These ideas may be new to Indians who have lived with supply shortages and high prices for 50 years. Some of these shortages are deliberate; they keep prices high. Hence, a concerted effort is needed to manage the supply chain well. That is where big-box stores play a role. Their financial muscle demands better everything from suppliers, forcing them to shape up. I do not mean to lecture Indian economists and politicians who already understand these ideas well. What they do not know is how to implement them. Hence, it makes economic sense to join up with the West, which has gained valuable experience and learned through many pitfalls.
If new entrants to the retail business do not meet expectations, prosperous Indians will continue to visit the better shopping centers of Singapore, Dubai, London and New York. There they will spend valuable foreign exchange.
Realizing the importance of retail, Indian industrial giants like Reliance and Bharti (of Bharti Telecom fame) are looking to pair up with major retailers in the West. Reliance opened its first chain of grocery stores in 2006 and plans to expand fast to other market areas. Big cities are first on their list. Later, as the idea catches on, they will expand to rural areas.
Bharti finally concluded its endless negotiations with Wal-Mart and signed an agreement for a joint venture. It has not opened any supermarkets or hypermarkets on the scale for which Wal-Mart is famous, however, due to political interference and reluctance on India's part to allow Wal-Mart greater financial participation. Wal-Mart is in India to make money, but India hates to part with hard-earned cash that could be used either for the welfare of the state or for the welfare of other Mom and Pop retailers. Indian officials continue to be stingy at every step of the way.
It is part of Indian nature to be wary of anything Western, an attitude formed during 200 years of colonial rule. India currently allows only 51 percent equity in single-brand retail and 100 percent equity in cash-and-carry wholesale trade. The sticking point is India's reluctance to grant higher equity participation to Western retail giants. This is politically motivated by undue concern over protecting the interests of Mom and Pop stores. The latter should welcome the opportunity to learn new retailing methods, and improve. Lack of improvement will hold India back and deny consumers better shopping at cheaper prices.
American Wal-Mart, British Tesco and French Carrefour are salivating at the thought of India's huge market. The country's rapid economic progress is making them all the more aggressive to enter India. Negotiations three years back with these major companies did not bear much fruit, as they were unwilling to adapt their business models to the special circumstances in India. Moreover India did not wish to become a dumping ground for cheap China-made consumer goods, which is exactly what Wal-Mart had in mind, in line with its U.S. practice.
This business model is unfit for India, however. India needs know-how on big-box merchandizing, managing an economy of scale, creating eye-catching advertisements, efficient management of supply chains and efficient cross-country transfer of goods. In return, foreign retailers can have profits and license fees as their reward.
Wal-Mart already operates a procurement center in Bangalore and is no stranger to India-made merchandise. It should source the bulk of its merchandise in India for Indian stores and develop efficient supply chains as it has done in China. That would calm political nerves, which have been frayed over the company's entry to India. As an additional reward for helping India build a very large supply chain, Wal-Mart should be allowed a higher financial participation in its joint venture with Bharti.
Other retailers like Nokia, Adidas, Reebok, Calvin Klein, Tommy Hilfiger, Versace, Chanel, Nina Ricci, Hugo Boss, Louis Vuitton, Aigner, LG, Sony and Samsung are waiting in the wings, looking for further relaxation of the 51 percent single-brand equity investment rule. They are all awaiting the outcome of internal political debate on the entry of foreign brands to India. The condition that they source the bulk of their merchandise in India should also apply to them.
There is a huge shortage of retail space in urban areas, so costs outside rent-controlled areas are escalating. Building restrictions, zoning laws and lack of available land to develop big-box retail centers are a few of the issues restricting the opening of new stores. Clever positioning of retail outlets is the key to their success. Relaxing local zoning laws, which date back to the British era, would go a long way toward accommodating new ventures. Huge warehouse space must be available at strategic locations as well, to keep the stores supplied.
The efficient movement of goods between stores, warehouses, suppliers and distributors is essential to running a chain store. Hence distribution logistics, which form the key component of retailing, have to receive equal attention. That brings us back to the heavily debated issue of the need to accelerate improvements to basic infrastructure, which goes hand-in-hand with development of the retail industry.
In short, India needs outside help to improve its retailing business. The current set up of Mom and Pop stores is totally inadequate. Help is available, and could arrive at short notice in a big way if the political issue surrounding the entry of Western retailers were resolved. The Indian retail sector has to enter the 21st century. Without outside help, it can only continue in its present dull and drab state.
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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
