FDI in retail

I’m trying to figure why that is turning out to be a big deal. Given that we have over 5 years of history of “organized retail” in India, and that it hasn’t performed particularly well on a lot of factors, I don’t know how permitting FDI in multi-brand retail is going to make a difference.

In my personal experience, the performance of “modern retail” over the last 5 years has been underwhelming at best. I can’t recall a single time when I’ve gone to one of these chain stores (Big Bazaar/ Reliance Fresh / More) and come back without getting annoyed with the checkout staff. While the variety available at these stores is massive, which is why I go there at times, the stores are all staffed with a bunch of imbeciles. Yes, all of them. They have made an attempt to overcome the unskilled staff by means of “software systems” and that has only added to the problem, rather than helping solve it.

On countless occasions, staff at modern retail outlets have refused to sell me something that I wanted to buy because “the item code wasn’t found in the system”. The other day the customer in front of me wanted to cancel an item midway through checkout, and the checkout staff had to call the store manager to reverse the transaction. I don’t know why the systems have been designed so badly. The fundamental problem with most of these “modern retail” outlets is that the staff there have no real incentive to actually sell you stuff, and the impression one gets is that the only thing staff strive to do is to avoid mistakes. Perhaps their incentives are structured thus. I know of a case from some 4-5 years back, when a family-owned opened across the road from a More outlet and in the course of a year, the latter had shut down.

Given this lacklustre performance of modern retail, I don’t know how much of a difference permitting FDI in the sector will achieve. Yes, it is argued that if Walmart invests directly the “know-how” it has accumulated over the years will be introduced to India. However, there is no reason to believe that this “know-how” has not already been implemented. Major players in organized retail such as Reliance and the Aditya Birla Group (More) have demonstrated in other sectors of their willingness to acquire know-how from across the globe, and implement it better than their global counterparts. Then, most major management consultants in India have established retail practices, which is another route for “knowledge import”. It is also not an issue of capital – Indian investors in various sectors have time and again shown that they are willing to invest in companies with strong business practices.

The problem with modern retail lies not with either know-how or investment. The problem is one of implementation, and I don’t see how bringing in Walmart (who have little idea of Indian markets) can make a difference there. FDI in retail is not going to solve this problem.

The real problem lies in bottlenecks higher up the food supply chain. Various states are yet to repeal the archaic APMC Act which gives certain people monopoly over food trade in certain areas. There are various restrictions on movement of goods across states (though this should be lesser of a problem once the GST (Goods and Service Tax) Regime comes into play). Time and again, the government acts arbitrarily in changing the rules concerning movement, import, export and “support price” of commodities, and this creates uncertainty in the market and scares away investors.

It is reforms higher up the supply chain that are crucial in order to make the food supply chain more efficient and reduce wastage. The government would do well to put the topic of retail FDI on the backburner (especially since it’s controversial) and instead focus on enabling the rest of the supply chain to become more efficient.

Shopping in New York

When I went shopping in New York on Friday I was reminded of this article by Tim Harford that the bofi had posted as part of a comment on one of my earlier posts. The basic insight in the article (which draws upon some widely cited research – I’ve read about it in several other places) is that too much choice may not be a good thing. That basically if presented with too much choice you are likely to just put NED rather than put effort into making the choice, and so it makes sense on behalf of the marketer to restrict choice.

So on Sunday evening, after having spent most of the day with a bunch of friends I know through an online group, and an hour or so with RG Mani, a very tired me walked into Macy’s, which claims to be the largest store in the world. I don’t dispute that claim – there are some six floors with each floor being the size of an average Big Bazaar. And there are clothes. And clothes. And shoes. And clothes. And more clothes.

Since I was trying to shop not only for myself, I ended up spending a considerable amount of time in the women’s section also. And the problem there was one of plenty. There was so much stuff to look at that it caused intense NED. I ended up just giving up on large sections of the store, and not even looking at even a sample of price tags there (yeah, I’m a cheap guy and was looking only for heavily discounted stuff). I won’t elaborate further on this “too much choice => NED” funda. Read the Harford article for more on that.

I don’t know what the strategy of the store is and whether they had deeply discounted stuff at all. The sample of clothes that I happened to check the price tags of were all extremely expensive. Perhaps the store did have some cheap stuff, but I don’t understand the policy of hiding it somewhere. Is the thinking that people on the lookout for cheap stuff are going to look more carefully and will hence find it? Which means some kind of “skimming” in terms of people’s attention spans? But the problem with this strategy is that by not displaying the cheap front up front, you may end up turning away a lot of people who look for cheap stuff!

Looking through all the huge floors of Macy’s caused me so much NED that when I saw an excellent looking reasonably priced Tommy Hilfiger sweater I didn’t even bother trying it. Maybe if I’d seen that sweater earlier I would’ve owned it now! So much that choice, and size, can do!

On Monday I went to this store called Century 21 near my office and had a more productive shopping experience. They also had both cheap and expensive stuff but they prominently advertised the cheap stuff with prominent “sale” signboards. Much more targeted, much more convenient for the cheap shopper, much more sales which means much more profits. Only thing I wonder is if this strategy of theirs turned away people looking for the higher margin expensive stuff..