In India the retailing industry has a long way to go and to become a truly flourishing industry, Retailing needs to cross various hurdles.
The first challenge facing the organized retail sector is the competition from unorganized sector. Needless to say, the Indian retail sector is tremendously crowded by the unorganized retailing with the dominance of small and medium enterprises in opposition to the presence of few giant corporate retailing outlets. The trading sector is also highly fragmented, with a large number of intermediaries who Operate at a strictly local level and there is no ‘barrier to entry’, given the structure and scale of these operations .The tax structure in India favors small retail business. Organized retail sector has to pay huge taxes, which is negligible for small retail business. Thus, the cost of business operations is very high in India. Developed supply chain and integrated IT management is absent in retail sector. This lack of adequate infrastructure facilities, lack of trained work force and low skill level for retailing management further makes the sector quite complex.
Also, the basic complexity of retailing- rapid price changes, threat of product obsolescence, low Margins, high cost of real estate and dissimilarity in consumer groups are the other challenges that the retail sector in India is facing. The position of the retail industry will depend mostly on external factors like Government rules and policies and real estate prices, besides the activities of retailers and demands of the customers also show impact on retail industry. Even though economy across the globe is slowly emerging from recession, tough times lie ahead for the retail industry as consumer spending still has not seen a consistent increase. In fact, consumer spending could contract.
The first challenge is competition from the unorganized sector. Traditional retailing has been Traditional in India for many centuries, and is characterized by small, family-owned operations.
Because of this, such businesses are usually very low-margin, are owner-operated, and have mostly negligible real estate and labor costs. Moreover, they also pay little by way of taxes. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. It is often said that the mom-and-pop store in India is more like a father-and-son enterprise. Such small shops develop strong networks with local neighborhoods. The casual system of acknowledgment adds to their charisma, Moreover, low labor costs also allow shops to employ delivery boys, such that consumers may order their grocery list directly on the phone. These advantages are significant, though hard to quantify. In contrast, players in the organized sector have to cover big fixed costs, and yet have to keep prices low enough to be able to compete with the traditional sector. Getting customers to switch their purchasing away from small locality shops and towards large-scale retailers may be a major challenge. The experience of large Indian retailers such as Big Bazaar shows that it is indeed possible. unreliable evidence of consumers who return from such shops suggests that the wholesale model provides for major bargains – something Indian consumers are always on the lookout for low cost products’.
The other major challenge for retailers in India, as opposed to the US, is the storage setup of households. For the large-scale retail model to work, consumers visit such large stores and return with supplies likely to last them for a few weeks. Having such easy access to neighborhood stores with whom, as discussed above, it is possible to have a line of credit and easy delivery service, congested urban living conditions imply that few Indian households might be equipped with adequate storage facilities.
In municipal settings, real estate rents are also very high. Thus the opportunities in this sector are Limited to those retailers with deep pockets, and puts pressure on their margins. Conversely, for Retailers looking to set up large stores at a distance from residential neighborhoods may struggle to attract consumers away from their traditional sources of groceries and other products.
India’s retail sector remains off-limits to large international chains especially in multi-brand Retailing. A number of concerns have been raised about opening up the retail sector to FDI in India.The first concern is the potential impact of large foreign firms on employment in the retail sector. A second related concern raised in the DIPP’s report is that opening up FDI would lead to unfair competition and ultimately result in large-scale exit of incumbent domestic retailers, especially the small family-owned business. A third concern raised by domestic incumbent firms in the organized retail sector is that this sector is under-developed and in a nascent stage.
In this paper we argue that the potential benefits from allowing large retailers to enter the Indian retail market may outweigh the costs. Evidence from the United States suggests that FDI in organized retail could help tackle inflation, particularly with wholesale prices. It is also expected that technical know-how from foreign firms, such as warehousing technologies and distribution systems, for example, will lend itself to improving the supply chain in India, especially for agricultural produce. Creating better linkages between demand and supply also has the potential to improve the price signals that farmers receive and by eliminating both waste and middlemen also increase the fraction of the final sales prices that is paid to farmers. An added benefit of improved distribution and warehousing channels may also come from enhanced exports. Thus, retailers are witnessing a rising task in terms of wooing consumers, despite offering big discounts.