Who is a real threat to Indian small retailers: FDI in Retail or Online Retail

India ranks 5th in the Global Retail Development Index 2012 listings. Grocery holds the biggest share in retail sales with supermarkets and now cash and carry also grwoing, the apparel industry is set to grow at about 9 to 10 percent y-o-y over the next 5 years. Meanwhile, what has captured the Indian consumer’s mind share is a simple mouse click. Online outlets like Myntra.com, Flipkart.com and Tradus.com provide the cost benefits and value adds like free door delivery. Efficient procurement, warehousing, delivery and revenue collection systems are evolving to deliver quality value added services like Cash on Delivery and free delivery for orders above a certain value. The consumer gets to shop from any location, set the time for delivery and pay once the product is delivered. This innovative format has literally made a world of products available to the moneyed.

India has 8 per cent internet reach and its growing fast. Local Kirana store holder, chemist or mom & pop store holder need not to Wallmart, Tesco or may be Carrefour. They cannot eat their pie any which ways as there are clause behind FDI in Retail-

•         Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.
•         At least 50% of total FDI brought in shall be invested in 'backend infrastructure' within three  yars of the first tranche of FDI, where 'back-end infrastructure' will include capital expenditure on all
•       At least 30% of the value of procurement of manufactured! Processed products purchased shall be sourced from Indian 'small industries

'

Such big scale investment will have more big stores with big buying efficiency to oofer good deals and offers. This will surely make all transaction taxable which in turn will raise government revenue in term of tax.

At the other hand there are already large format retailer present in India such as Chroma, Reliance or Fututre Group. None of mom & pop retailer feeling heat from them then how will Wal Mart be a threat to them.

What Indian consumer more focusing on is convenience. Big Bazaar pilot testing home delivery model in small part of Mumbai. If it gets successfully implemented then Mom and pop store will surely lose some sales.

At the other hand online retail is bringing silent magic. People in tier 2 and tier 3 cities are well aware of branded products but they do not have the reach. Internet surely fulfilling that gap. The new-age retailing models that are becoming successful in the country are online models with excellent offline enablement. These business models are incredibly innovative in terms of their procurement, inventory management, vendor base development and collections approach (primarily cash-on-delivery).

Few politicians making FDI their agenda for increasing their vote bank.  Ruling government coined FDI to de-focus Coal block scam. Ironically FDI in retail will surely help India and Indians to grow. This foreign money will make retail more organised, in turn more tax earning for government, more jobs, more demand and better cost for farmers seems like a win-win proposition.

Its not FDi that may be cause of concern for small retailers it online retail that innovatively eating their share from the pie. Its not policy, FDI or government that can save them. They need to innovate and bring challenges to the table for new age retail and new age retailers.

-Nikhil Kunwar