Some years ago, a very lively \nand friendly conversation that I was having came to a dead stop when the other \nperson got to know that I worked with the retail sector.
Her attitude towards \nme immediately underwent a dramatic change. From a normal human being, I suddenly \nbecame comparable to the “lowest of the low” on the planet. I was instantly accused \nof being “one of those who promote others to consume more and more, endlessly” \n(obviously to their and others’ detriment). <\/p>
That incident seemed to typify \nfor me the mind-set that we in India had fallen into – “dukandari” (shopkeeping) \nis bad, because it promotes ill-afforded consumption. We have reached that mind-set \ndue to centuries of living a poor life pre-independence and, after independence, \ndecades of good intent but poor practice. <\/p>
Contrast that with the American \nphilosophy that not only is consumption ‘good’ and necessary for economic prosperity \n– it is akin to God. In fact, from my point of view, much more to the other extreme…but \nthat is another story. <\/p>
However, the Indian attitude is certainly a strange \ncontrast, since consumption, commerce, change are well-established and accepted \nin the traditional Indian schools of thought. Let me offer the two following examples, \nfrom millennia-old Indian philosophy: <\/p><\/td>\n
- The concept of “Purushartha” that offers a balanced view to managing \nlife, bringing together Dharma (righteousness), Artha (wealth), Kama (sensory \npleasure) and Moksha (communion with the Infinite). The physical and worldly is \nas important as ethereal and spiritual. As Arjuna is quoted in the Mahabharata: \n“Without Profit or Wealth, both Virtue and (the objects of) Desire cannot be won…Do \nnot applaud poverty”. <\/li><\/ul>
- The division of life into the four ashramas, \nBrahmacharya (Focus on Study), Grihastha (Focus on the World, Family), Vanaprastha \n(Withdrawal from the Worldly), and finally Sanyasa (Renunciation). Again, while \nthe approach is not prescriptive, the weightage offered to each phase of life \nis equal. And grihastha, the worldly phase, is presented as the root that allows \nthe others to flourish.<\/li><\/ul>\n
Clearly, there is a role for commerce and consumption-led \neconomic development in the overall re-development of India. And I believe retailing \nas a sector has a very large role to play in this.<\/p><\/div>\n
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<\/div><\/div>\n\nRetail’s Role as an Economic Engine <\/b> <\/p>
If we consider the hierarchy \nof economic development and subsequent impact, progressively we see: <\/p>
- \n
- Subsistence farming giving way to modern farming<\/li>
- Cottage industry \ndeveloping into larger scale manufacturing <\/li>
- Small towns and poor villages \ntransforming into a vibrant and balanced urban and rural Mix<\/li>
- Fragmented \nretail businesses growing into modern retailing, and<\/li>
- Generic merchandise \npaving the path for brand developmen<\/li><\/ul>
In this evolution tangible (touch-feel) \nvalues give way to intangible (imagined \/ perceived) values that are much greater \nin magnitude. In fact, the inflexion point really comes when the transition to \nmodern retail happens. While the previous steps are essential for the growth of \nmodern retail, the reverse impact of modern retail on those very steps – manufacturing, \nagriculture and urban development – is huge. At this stage, the economic development \nstarts spiralling through this feedback loop.<\/p>\n
\n\n\n<\/div> \n\nWhy is there such a wide and deep impact of modern retail on the other sectors? \nThe prime factors are mainly three, and all have an impact on agricultural supply, \nmanufacturing and other SME suppliers, town planning, services infrastructure, \nas well as having an impact on the socio-cultural environment.<\/p>
Firstly, as \nretailers grow larger, into chains, the need for efficiency grows. Process and \nsystem-led planning and execution become the norm. Wastages or inefficient processes \nwhich may only be quirks in a small business, may be fatal in a larger one in \na more competitive market. Second, a related factor, is the need for consistency \nacross the chain since any modern retailer would wish to communicate certain core \nbrand messages from each and every store. Both of these factors push the need \nfor more structure into the supply base, whether farm or factory. <\/p><\/div><\/div>\n
<\/p><\/td>
\n<\/td><\/tr> <\/td> The third \nmajor factor is the need for differentiation from competitors. As the market grows \nand matures, competitors’ offers can start looking very similar to each other. \nThe successful players start pushing more product development, private label growth \netc. which can help them stand out in the market. This has its own separate impact \non the supply chain in terms of upgradation of product in terms of features, quality \nand benefits delivered to the consumer.
<\/td><\/td><\/tr> \n <\/td> \n All this, of course, looks like the development path followed by the western \neconomies over the last 150-years. And from the looks of it, this seems to be \nthe development path being pushed by a lot of people in India, presumably aiming \nfor the same result. <\/p>
However, let’s pause for thought. <\/p>
Need \nfor An Indian Model<\/b> <\/p>
Economic growth or prosperity can be looked at \nin two ways – on average how prosperous a country is (in comparison with other \ncountries), and what is the relative position of people within the country. Economists \nmeasure the second factor using the Gini Coefficient, which essentially measures \nthe level of income inequality in a population. (A Gini Coefficient of 100% would \ntheoretically be completely unequal with one person holding all the income in \nthe country, and the lower the Gini indicates that incomes are more equal within \nthe country. The more overall prosperous countries (such as the Scandinavian countries) \nhave also more equal distribution of income within the country, while relatively \npoorer countries (such as in Africa and Latin America) tend to have higher Gini \nfigures.) <\/p>
The biggest problem that I see in the current push for consumption-led \ngrowth (retail-led growth) is that the focus is totally on the first measure (per \ncapita GDP, average income etc.), rather than on the second. After decades of \nalmost monastic self-denial, India seems now to be swinging to another extreme \n– an orgy of consumption. <\/p>
Let me describe what I believe the problem is. \n<\/p>
In this focus, there is a single minded focus on earning and spending \n“More” – if you want to fit in you need to acquire more, if you want to stand-out \nacquire something different (more), if you do not have something you need to acquire \nit (more), and if you do have something it is always good to have (what else!) \nmore. <\/p><\/td>
<\/td><\/tr> \n<\/td> \n<\/p>
<\/center><\/td>\n <\/p>
In itself is there a problem? After all, inequality is \na fact of life, and can be good because it creates ambition and brings forth creative \nenergy. But does that mean that more inequality must be better? <\/p>
If we \nimagine the population of India to be a cylinder or a cone, we can visualise how \naspirations to a better life are pulling everyone upwards. The problem arises \nwhen the aspirations that are raised cannot be fulfilled with the income available \n– that vacuum creates stress in the society. This is not a problem for the future; \nwe already have ample evidence of it in our cities with the dramatically higher \nrates of crime related to money and aspirational wealth \/ spending. <\/p><\/td>
\n<\/td><\/tr> <\/td> \n Referring back to the Gini Coefficient, economists have also defined a certain \noptimal range – if incomes are too equal, then there is little incentive for self-driven \ngrowth, but if incomes are too unequal beyond that range then social injustice \nand dysfunction is more widespread. <\/p>
India at the moment is actually rated \nto be almost in the middle of the optimal range. However, the business, economic \nand urban models being followed are more from the UK, the USA and China. And if \nwe see where these countries are on the Gini Index, we find them outside the optimal \nrange – on the more unequal side. <\/p>
Can we even imagine the upheaval that \nmoving along this path could cause in a country like India?! <\/p>
So what is \nthe solution? What should the Indian model be? And what role can retailers, especially \nmodern retailers play in this? <\/p>
I believe that it is high time we start \ncreating economic growth where the maximum people are – in India’s case that is \nstill the villages rather than the cities. Secondly, the small scale sector is \nthe largest sector. The government needs to look more actively at policies that \nencourage agricultural development and the growth of small scale sector companies. \nIf we need buzzwords to create a wave, let’s use “Agricultural Product Outsourcing” \n(APO) as a buzzword; let’s drive India’s strengths in “Small Production Outsourcing” \n(SPO)! <\/p>
Similarly, retailers need not get cowed down by the mega plans \nannounced by the likes of Reliance and Bharti – India can accommodate hundreds, \nmaybe thousands, of farm-to-fork initiatives. <\/p>
Retailers need to shift \ntheir attention from the assumed middle class (who are actually quite rich) to \nthe true middle class. (I’ve written elsewhere about that issue.) <\/p>
Development \nof domestic brands is another area where retailers can have a huge impact – as \nwe mentioned, the emergence of strong domestic brands has a huge impact on the \neconomic profile of the country. And in most cases, the most successful brands \nactually grow out of small scale businesses that are commonly dismissed as mom-and-pop \nor pop-and-son! Modern retail can have an enormous impact in supporting the emergence \nand growth of these in India. <\/p>
I do believe that successful retailing is \nnot about throwing mega-bucks at real estate and advertising, or paying humongous \nsalaries. Apologies if this sounds completely contrary to the “gung-ho” feeling \nthat most people have about the retail sector. But the sooner we face this issue \nand tackle it wilfully, the better it is – for all of us, including the retailers. \n<\/p>
We need to start looking at retailing from a completely different angle, \nand look at its role in creating a new economic profile of India. Retailers need \nto critically look at how they interact with the rest of the economy in a totally \nnew way. <\/p>
Once we are able to do that, we will also be able to make the \nshifts that are necessary to create a more sustainable economic environment and \nmore widespread prosperity. And that is most definitely in the interest of the \nretailers. “Inclusive growth” should be more than a buzzword for retailers – it \nis the way for them to create sustainable growth for their own businesses. <\/p>
\nSo – in this context – if you are a retail entrepreneur, or a retail employee, \nwhat’s your resolution for 2007?
<\/p><\/td><\/td><\/tr> \n <\/td> \n (c) Devangshu Dutta, November 2006<\/i> <\/p>
- The division of life into the four ashramas, \nBrahmacharya (Focus on Study), Grihastha (Focus on the World, Family), Vanaprastha \n(Withdrawal from the Worldly), and finally Sanyasa (Renunciation). Again, while \nthe approach is not prescriptive, the weightage offered to each phase of life \nis equal. And grihastha, the worldly phase, is presented as the root that allows \nthe others to flourish.<\/li><\/ul>\n
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