Less is More: Not Just a Retail Phenomenon

One of the major advantages of organized retail, apart from low prices, is the vast array of choices it provides to the consumers. In the last few years, the rapid increase in the number of super-markets and mega-markets in the country has been accompanied by an explosion in the varieties of every imaginable merchandise that populates their shelves.

But like many other transformations that retail sector has been undergoing, a rather unexpected one has been gaining grounds, and it is not so recent. Retail giants like Walmart are already cutting down the huge number of choices offered in their stores, favouring only selected varieties which are generally preferred by the customers. But how does this make any sense? As it turns out, organized retail players all over the world are facing heat due to at least one of the following factors:

1.    Rising real estate prices,

2.    Expenses of managing a large number of SKUs, their supply chains and inventories,

3. Loss of opportunity of tapping consumers in urban centers where space is a scarcity and huge shopping centers cannot be established and

4. Loss of opportunity to tap communities of consumers in rural areas, which are too small to sustain a super or mega market.

These are also the significantly responsible reasons for the losses being incurred by almost all the organized retail players in India. Stocking a large number of products and their varieties calls for huge real estate investments, and that has been made very difficult by the sky-rocketing real estate prices. Towns and villages are usually dominated by unorganized retailers as they have been so far neglected by the organized players.

Another important aspect is related to the consumers. It has been found that though providing some variety boosts customer satisfaction, going too far might lead to “customer confusion”. Too many choices overwhelm the customers and lower their buying intent. The solution lies in bringing to them a few, “well-researched” types of products instead of too many varieties. This is the simple concept of “Less is More”. So, in a nutshell, this enables the organized retailers to achieve the following:

1.       Better customer satisfaction,

2.      Lesser number of SKUs to manage and hence simpler inventory,

3.      Ability to establish small-sized stores with low real estate investments and

4.      Ability to establish small-sized stores in urban centers as well as in rural areas.

It follows that Walmart’s decision of opening dozens of scaled-down stores in the near future is not surprising at all. It is interesting that some Indian retail giants have already been following this model. One close example could be the Mumbai based D-Mart. Future Group also runs a chain of small stores called KB's Fair Price, apart from the giant Big Bazaar stores.

“Less is More” has far wider implications than what appears from this article so far. For example, in a recent interview with The Economic Times, the MD and CEO of Bajaj Auto Mr. Rajiv Bajaj stressed upon the relevance of this idea to the competitive motorcycle market. Apparently, this has allowed Bajaj to gain a strong position in the market in the last few years. Though the top position is still held by Hero Motocorp, Bajaj Auto has stunned everyone by becoming the most profitable motorcycle manufacturer. The company claimed 58% of the total profits generated by the industry in 2010-11.

As the companies go “on diet” to become more efficient and move faster than the competition, the focus will now shift on selecting the “right diet” or the best choices to be provided to the customers.

References
1. Why Less is More for Holiday Shopping - Forbes

2. In Store Aisles, Less is More but Customers can still be Particular - The Globe and Mail
3. Less is More for Walmart, Other Retailers - CSPnet.com

4. Strategy is Nothing but Specialization: Rajiv Bajaj, MD & CEO, Bajaj Auto - The Economic Times
5. Retail Chains Witness Growth but Widened Losses; Rs. 987 Cr Hit During 2010-11 - The Economic Times
6. Aditya Birla Retail Plans to Shut Down More than 3 Dozen Stores and Lay off More than 150 Staff - The Economic Times

The writer of this article, Akshay Agarwal is a PGP student of Indian Institute of Management, Raipur and has done his B.Tech from Indian Institute of Technology, Guwahati.

Foreign Direct Investment in Indian Retail Sector

Anything critical that has to be done must and will be done with enough thought and precaution. But, whatever be the case, one is definitely going to face new challenges regarding the decision that’s being taken. The decision can be anything ranging from personal to the highest order in our Nation. So is the case with the FDI, or for that matter any policy being implemented by the government.

To put out a basic fact, the biggest issue in our Nation does not hit the front page of the news paper or the news headline whereas it is simply the news that’s in the front page of a news paper and running in the headline that becomes the issue. First and foremost reason for this is the lack of awareness that people have. Analyzing the reactions from the public it is well understood that the resolution taken for any problem is to terminate the problem rather than finding a prompt solution which would lead to the betterment of the ones involved.

As per the government’s decision ‘Multi-brand’ retailers are allowed 51% FDI. 30% of procurement of their goods must come from the Indian backend. The problem or the issue raised is basically that the small retailers would suffer. True, but only if the bill is passed without any consideration for these retailers. Why then is the government so keen to implement this policy? Is it just a ‘rock’, ‘paper’, ‘scissors’, decision taken by a panel of members and the advisory committee.

Consumers only want their goods at affordable prices and they want the goods to have ‘good quality’, is this not going to increase the competition also within the domestic market to maintain, rather improve the quality of the goods sold. Of course the bill might not entirely be within the best interests of the small retailers but it seems to be in the best interests of the nation. Obviously a resolution can be found for this one problem. The policy should just have provisions ensuring the interests of these retailers. Nothing is impossible, given the resources. It is the Indian government that’s creating the bill and it’s obviously not impossible to draft it in our favor and suite our needs.

The FDI in multi-brand retailing is just going to be a new path of exploration, as was the IT field which took India to new levels. The FDI would curb inflation, and would also add a whole new sea of opportunities for Indians. With the retailers having to buy 30% of their procurement from the domestic market, the farmers would definitely benefit. This could possibly end the middle-man era that has eroded and misplaced the wealth from the place it’s supposed to be in. The increase in competition means better quality for the consumers. With FDI also comes technology and innovation transfer which would further aid our nation in development. For example, better storage facilities for goods would put out a huge margin of loss which has been resulting from improper storage.

The only and most important thing to be serious about is the invasion of Chinese products on the Indian market. Discussions and debates mostly surround only the impact on the small retailers and not the the long term impact this decision is going to make. ‘FDI worked in China, then why not in India?’ is a popular question. Well, the Chinese, unlike Indians, are one of the largest exporters in the world and earn their income mostly on exports. For a matter of fact, 70% of Walmart’s goods come from China, which is why we need to be careful of the ‘Chinese invasion’. If Walmart was an individual investor, it would stand 8^th largest investor in China just ahead of Russia. This is how big the impact is going to be.

Everything good comes with a price and we have the responsibility to regulate policies well which would prevent unnecessary trouble later. A regulatory body for this particular sector, if set up, would definitely add to the benefits of the host nation as this body would be committed to that particular sector. Policies are the back bone to any standing decision and to have it framed and implemented for the betterment of the people is the most vital part. India is very well known for bringing up fantastic plans, but ends up favoring the wrong side due to lack of commitment into the policy. This is one reason that every issue in our nation has to be hyped.

To those who say ‘They don’t allow us, then why allow them?’, there’s just one thing to say. People prefer the better, and if the Indian retailer is better than its foreign counterpart, the Indian is going to be the ideal choice. FDI will bring brighter dreams in the future for our nation. The final verdict is that implementing FDI is one of the best choices made by the government; the difference is only going to be a matter of how it is going to be implemented and what steps are taken to have it play for us. It is pre-mature to predict how this would end up, as one can only wait and watch into whose hands the policy plays in the long run.


The writer of this article, Anshu Katiyar is a PGP student of Indian Institute of Management, Raipur. He has done his B.Tech in Information Technology from Dr. M.G.R. University, Chennai and can be reached at pgp11008.anshu@iimraipur.ac.in