The Hindu Business Line : The retail wave

A COMBINATION OF factors seem to have triggered a wholesale capacity expansion by the organised retail industry in the country. The stock market has also developed a fancy for stocks of companies engaged in retail trade; these shares are outperforming the market indices by a good margin. The situation is such that even a company with virtually no track record of profitable functioning or dividend payout can price its offering at a hefty premium and expect to attract robust participation by investors and sustain interest in the secondary market too. Current profits in the organised retail trade may be good and the future prospects even more alluring. But, then, there is nothing quite like the ability to spread investment risk among a large community of investors, evident in the stock price behaviour, to boost business confidence beyond what may be dictated by apparent business fundamentals.

Currently, the official policy is not welcoming of foreign direct investment in retailing. But it is only a matter of time before the Government relents on it. Not only because it is in the very nature of evolution of the Indian economy, where more and more segments of economic activity are thrown open to overseas interests, but also because there is the danger of going against the commitments to the World Trade Organisation. India may attract retaliation should it insist on keeping the door shut to foreign investments in retailing. Viewed from this perspective too, domestic players have an added interest in quickly expanding their presence across geographical regions and product segments.

Much has been written about how India's changing demographics and consumer behaviour will open up opportunities for the growth of organised retailing as represented now by such players as Trent, Pantaloon, and Shopper's Stop. So, is the country then heading for a retail revolution? Though official statistics may belie the claim, there is strong empirical evidence that the average urban consumer is saving less today than he did a few years ago and, importantly, spending his income on a wider array of goods than earlier. India has not been able to escape the social trends of rising incomes, double salaries and nuclear families that have sparked retail revolution elsewhere.

Another process too has been at work. The global economy is in the third wave of value creation. In the first wave, goods were mass produced and sold to consumers at affordable prices by a multitude of producers. The second saw value being created through clever marketing and brand association. But as discerning consumers realised that many brands offered more or less identical products, it is dawning on producers that value can be created and sustained only by ensuring the continued patronage of consumers through loyalty programmes. If the first wave of consumer spending addressed satisfaction of certain basic needs and the second the `perceived' values, this third wave is about a certain contextual element (ambience) to the satisfaction of basic and perceived needs that products embody.

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