Small Retailers of India will commit suicide due to FDI in retail.

Thursday 24-Nov-2011 is a historical event for Indian retail industry when the Union Cabinet has decided to allow up to 51% FDI in multi-brand retail. It also increased the FDI limit in single-brand retail to 100% from 51%.

 

This is how Indian government thinks of FDI

  • Common people: It will create up to 10 million (100 lakhs) jobs in next 3 years
  • Farmers will get more than 12-15% of the consumer price they get for fruit and vegetables. 70% of retail is in food items and these are mostly sourced locally. Government will have the first right over procurement of farm produce.
  • Consumers will get products at cheaper prices, as competition will bring down price.
  • Small industry: 30% Mandatory sourcing from small-scale sectors will help small industry. Ikea already sourcing 30% of input from India.
  • Back end infrastructure: Approval only after investor meet all conditions, including 50% investment in back end. This will being several billion dollars of Investment in retail and the infrastructure will develop.

 

And its answer to one who protest

  • The subject is in the concurrent list and the Center has the power to make laws
  • States can stop retailers under the local laws
  • The retail companies will build the back-end infrastructure that is vital to cut wastage in India's $450-billion (Rs 2.3 lakh crore) retail industry.
  • Only 53 cities out of 581 towns and cities in India will meet the one million norms (a minimum of 10 lakh population).
  • Countries like China, Brazil, Indonesia, Chile allow 100% FDI and have seen tremendous growth

 

But what about the Indian Retailer?

  • There are approximately 1 crore 40 lakhs retail shops. We think that 70 lakhs of these retail shop will have to close their doors.

  • Only 5% of it is organized retail. Organized retail is often mistaken with a retail with a self service system with barcode and computers. Organized retail means much more than that.

  • Most of the retail business is family owned business where they think of profit = sale – cost. Most of the time they do consider their own salary, interest and rent as cost.

 

Which Indian retailer will survive?

  • Those who has already earned a lot to be sufficient for next 2-3 generations.
  • Those who has diversified have alternative source of income or whose next generation are in to jobs such as engineer and doctors.
  • Those who are really converting there business in to a organized business using systems and process.

 

 

In my opinion a retailer will surely survive if she thinks of improving and controlling the following

  • Stock Productivity
  • Area (Space) Productivity
  • Staff Productivity
  • Sales & Purchases
  • Trade creditor and debtors
  • Bank and Cash balance
  • Profit margin
  • Control expenses and other cause of erosion of margin
  • Customer satisfaction.

Please share your thoughts.

 

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