Tuesday, December 29, 2009

ORGANIZED VS UNORGANIZED RETAIL SECTOR

ORGANIZED VS UNORGANIZED RETAIL
HISTORY OF RETAIL IN THE WORLD-

According to world history, the Romans are the first civilization to establish a sophisticated form of retailing. Numerous small shops were set up with centers. In fact, ancient ruins indicate that the world's first department store was in Rome!! With the fall of this empire, retailing disintegrated. By the 12th century artisan and tradesmen began to organize into "guilds" and opened up small shops. They helped them gain social and economic advantages.
American retailing institutions originated after 1850.It is the first country to start retailing. After that, department stores became important. For example, Richs was established in Atlanta in 1867 by 4 Hungarian immigrants. Simon Lazarus, an immigrant from Poland, opened a men's clothing store in Columbus, Ohio in 1851.
As department stores grew in cities, Rural citizens made us of catalogs from mail order houses. This allowed them to get the goods they needed without the hassle of traveling long distances into the city. From here, chain stores evolved. Technology improved. The Internet boomed! The rest is the making of history!
TYPES OF RETAIL STORES-
Both organized and unorganized retailing is found in most countries throughout the world. India and China are strong examples of countries in which unorganized retailing dominated their markets. Today these countries have a growing economy because of the influx of organized retailers into their markets.
In any country, particularly in developing & underdeveloped countries, we can fine 3 types of retail like
1.Organized Retail- Owned by a private or Govt. sector based on certain systematic principles. Examples- Big bazaar, Wal-Mart etc. They have license to sell the products and abide by the rules and regulation of govt.
2.Unorganized Retail-They are owned by a private individual & based on the principles, but not owned by any private company.
3.Grey Marketers- These are unauthorized small stores which are owned by any private individual. They do not have a particular shop. These stores are a biggest threat to both organized & unorganized retailers. Exa-roadside small sellers.
In the developed economies, organized retail is in the range of 75-80 per cent of total retail, whereas in developing economies, the unorganized sector dominates the retail business. The share of organized retail varies widely from just one per cent in Pakistan and 4 per cent in India to 36 per cent in Brazil and 55 per cent in Malaysia (Table 2.2). Modern retail formats, such as hypermarkets, superstores, supermarkets, discount and convenience stores are widely present in the developed world, whereas such forms of retail outlets have only just begun to spread to developing countries in recent years. In developing countries, the retailing business continues to be dominated by family-run neighborhood shops and open markets. As a consequence, wholesalers and distributors who carry products from industrial suppliers and agricultural producers to the independent family-owned shops and open markets remain a critical part of the supply chain in these countries.
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Country Total retail stores in the world & their percentage
(US$ bn)
SHARE OF RETAIL % OF RETAIL
USA 85
JAPAN 66
CHINA 20
U.K. 80
FRANCE 80
GERMANY 80
INDIA 4
BRAZIL 36
RUSSIA 33
KOREA 15
INDONESIA 30
POLAND 20
THAILAND 40
PAKISTAN 1


Source: Planet Retail and Technopak Advisers Pvt. Ltd

RETAIL IN INDIA-
The origin of retailing in India can be traced back to the emergence of kirana stores &mom & pop stores. These stores used to cater local people. Eventually the Govt. of India supported the rural retail & many retail shops come with the help of KHADI & VILLAGE INDUSTRIES COMMISSION. The first few companies come up with retail chains were in textile sector in the year 1980.The companies are Bombay Dyeing Kumar’s, Raymonds etc. Later Titan launched retail show rooms in organized sector.
If you will follow the above examples, there are great changes occurring in retail sector. The retail industry is moving from an unorganized one to a organized one.
The growth of the retail trade in India is associated with the growth in the Indian Economy. Gross domestic product (GDP) grew by an annual rate of 8 per cent. The international consulting firm, A.T. Kearney, annually ranks emerging market economies based on more than 25 macroeconomic and retail-specific variables through their Global Retail Development Index (GRDI). For the last three years (2005, 2006, and 2007) India has been ranked as number one indicating that the Country is the most attractive market for global retailers to enter. The high economic growth during the last few years raising disposable incomes rapidly, favorable younger population with less dependency, and demographics placing incomes on urbanization are some of the major factors fueling the Indian retail market.




ORGANIZED VS UNORGANIZED RETAIL STORES (WITH SPECIAL REFERENCE TO INDIA)-
A.Advantages of Organized Retail in India-
1.Enhanced Welfare Gains for Consumers- The emergence of organized retail undoubtedly gives consumers a wider choice of goods, more convenience, and a better shopping environment, among other benefits. This is feasible because organized retail can take several formats, from small neighborhood stores in densely populated cities with high real estate prices to large air-conditioned malls in the periphery where real estate is cheaper. Organized retail can appear small but spread in all local markets, providing the convenience of a neighborhood kirana store but with procurement on a mass scale that keeps prices low and provides greater variety.
2.Gains for Farmers- Organized retail will result in a complete revamp of the agricultural supply chain in the country. A recent study by CRISIL has estimated a current annual total loss of about Rs. 1,000 billion in the agricultural supply chain, 57 per cent of which is due to avoidable wastage and the rest due to avoidable costs of storage and commissions (CRISIL Research, June 2007). Organized retailers have already started procuring fruit and vegetables from farmers directly bypassing the various intermediaries who add more costs than value to the food chain. They are investing heavily on logistics in the form of centralized warehousing and distribution centers, transport and cold storage, either directly or through engaging third party logistics companies. They are also employing a large number of unskilled workers for sorting, grading, packaging and labeling. All these will enhance farmer’s realizations, improve quality of products at the shop and reduce the ultimate consumer price.
3.Link with Manufacturing-The Planning Commission has identified four sectors as the major employment generating sectors for the Eleventh Plan period, 2007-12. They are: (i) food processing industry; (ii) textiles and clothing; (iii) tourism; and (iv) construction. Of these sectors, all except tourism are getting a fillip with the growth of organized retail. Again, the small and medium industry (SMI) sector is getting advantages with the emergence of organized retailers by becoming their suppliers. Modern retail will catalyze the development of the SMI sector in the country.
4.Boost to Exports- Organized retail’s link with exports comes through foreign players. International retailers look for sources around the world and a country in which they operate
becomes a source for their global sales. Some of the international retailers that have plans for India in the future have already developed suppliers in the country and have started exporting from India. For example, Wal-Mart exported an equivalent of US$ 600 million, and IKEA about euros from India in 2006-07.
5.Impact on Growth and Productivity- Organized retail will enhance the growth and productivity of India by helping the farmers, consumers and other sectors by providing high quality products.
organized retailing will remove various inefficiencies that characterize the present Indian distribution system, which in turn will provide better price for the farmers and suppliers on the one hand, and lower prices for consumers, on the other.
6.Improvement of Government Revenues- Another significant advantage of organized retailing is its contribution to government revenues. Unorganized retailers normally do not pay taxes and most of them are not even registered for sales tax, VAT, or income tax. Organized retailers, by contrast, are corporate entities and hence file tax returns regularly. The growth of organized retail business will be associated with a steady rise in tax receipts for the central, state, and local governments.
7.Impact on Employment and Prices- The growth of organized retail will enhance the employment potential of the Indian economy. While providing direct employment in retail, it will drive the growth of a number of activities in the economy which in turn will open up employment opportunities to several people. It may adversely affect employment in unorganized retail and the trade intermediaries associated with the traditional supply channels but the additional jobs created will be much higher than those that are lost. An important point to be noted is that while the jobs that organized retail displaces are the low-end, low-quality, underproductive ones, the new jobs created are the high quality, productive ones. It also generates a number of jobs for unskilled labour for the tasks of sorting, grading, labeling, etc.

B.Advantages of unorganized retail –

1.Employment Impact- According to ECR report, unorganized retail outlets employ more family labour than hired labour; on an average they employ 1.5 persons per shop from the family, and hired employees of 1.1 persons in India. It is a way of livelihood for Indian people.
2.Location Advantage for the Unorganized Retailers- Location is a comparative advantage for unorganized retailers as the mean distance to the residence for consumers at unorganized outlets is 1.1 km compared to 2.6 km for consumers at organized outlets. A majority of consumers walk to traditional retailers because it is convenience to reach.
3.Credit Facilities- Consumers get credit facilities in small unorganized retail stores and can make a deferred payment which is not possible in organized retail stores.
4.Purchase of small quantities- It’s a typical attitude of Indians to purchase in small quantities of various goods which they can purchase from small shops than organized retail stores.


PARADISM OF ORGANIZED AND UNORGANIZED RETAIL IN INDIA-

As far as India is concerned, there is necessity of both organized and unorganized retailing. Both the formats have advantages and disadvantages. Complete organization of retailing stores will create unemployment, poverty & may be bad for the poor consumers also. At the same time a fully unorganized retail format will adversely affect economic growth, govt. revenues and will be a hinder in the process of development of the country.
India is at the crossroads with regard to the retail sector. Several emerging market economies have gone ahead and reaped the benefits of modern retail. India is however a latecomer to organized retail expansion and the picture still remains unclear as to its future direction. The study advocates a balanced approach to retail and suggests that the government plays a major role in shaping its future course. There is no doubt that traditional retail has been performing a vital function in the economy and is a significant source of employment. However, it suffers from huge inefficiencies as a result of which consumers do not get what they want, and farmers often get prices for their produce much below what is considered fair. In contrast, organized retail provides consumers with a wider choice of products, lower prices, and a pleasant shopping environment. It gives farmers a better alternative channel for selling their products at a better price. The competition from organized retail has affected the business of traditional retailers but they are making efforts to stay on. In their struggle to face this competition, they are handicapped by a lack of access to formal credit from commercial banks. As in other countries, government policy can and should play an important role in modernizing the unorganized sector and improve its competitiveness. On the other hand, a policy of protection of traditional retailers by restricting organized retail will harm the growth prospects of the country by foregoing the enormous benefits that are generated by organized retail. However, the following measures can be taken to solve the paradigm of organized and unorganized retail.

1.Liberalization policy for domestic retailers to become organized retail.
2. More credit facilities for rural unorganized stores to develop their stores.
3. Proper regulatory body for unorganized retailers for establishing retail shops.
4. Ceiling on prices by the govt. to control price level of different organized retailers against predatory pricing.
5. Educating rural people and improving their standard of living.

So, Indian retail requires a balanced strategy for organized and unorganized retail stores that may be called as REORGANIZATION OF RETAIL SECTOR.




Submitted to- SEEDS
Submitted by- Aparajita Sahoo
Date: 29/12/2009

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