FDI in Retail- Part IV

So once again the debate on FDI is on... I wrote earlier about the same here.

At that point of time the MMS and company chickened out and decided to roll back the same. This time it looks they are willing to fight it out with Ms Banherjee and others who believe 1977-78 was the best period in India's economic history.

Let us look at the basic argument most people have against investment in retail.

1. It will impact the livelihood of millions of Kiryana shop.

My question is what about the millions and millions of farmers who will benefit and the consumers who will get better price goods? Do we really want to keep the interest of Kiryana shop owners above our farmers and consumers?

I don't think any body would like to do that. So why is Ms. Banherjee et. all opposing it. Well she has a history to oppose things she even opposed Nano in Singur. Guess what Singur is the loser and Gujrat won and today the area around Nano factory in Gujrat is more prosperous. I don't think Ms. Banherjee has stopped liking her role as main opposition in WB, she still continues to be the leader of opposition without realizing that now she is the CM of the state that has elected her with a lot of hope.

Anyways coming back to the Kiryana shop...

A lot of them are guilty of following ( please not I am saying a lot not all
1. Not paying all their taxes like Sales tax, Income tax etc.
2. Employing underage kids
3.Not paying minimum wages to the employees
4.Selling goods that are spurious to make some extra money.

I am pretty sure no MNC will actively get involved in point no 1 to 3, the 4th is more of our national problem and needs a different debate.
Yes I understand that the MNC are not coming to India for the love of the land but they do bring some good things like better infrastructe, better wages etc.
Just imagine if 15-20 years ago we have said that oh we have Infosys and Wipro and TCS and hundreds of small IT company in country so we should not allow Microsoft, IBM, Accenture etc in the country. I think if we had done the same we would have been a have been in IT and BPO also and not the world power that we are today in IT and BPO. And the best part is both Infosys and IBM have benefited from the competition and today IBM has more employees in India than in most other countries. 

Why not repeat the same in Retail and make it a win win situation. 

Plastic Bags

Plastic bags were banned in Hyderabad some time ago. I thought this will be a good way to control the menace of plastic bags in the city; alas my happiness was short lived. Apparently there is a loophole in the law which allows the retailers to give plastic bags to shoppers at a price. So this means that the bags that were free to us till some time ago and everybody wanted ten bags for shopping 2 items now has to pay for the same. This has led to a very peculiar situation at the payment counters of the retail stores.

A lot of people are still not aware that they have to pay for the bags and will bark orders at the poor counter clerk to give them bags and on discovering that the bags now come with a price tag will start baring their nicotine or pan stained fangs (not to say that clean molars remain entrapped in their mouth washed enclosures).

The retail stores are very happy at the opportunity of making a buck from something that was a pure cost for them. So they are more than happy to give you bags but will charge you any ware between 3-10 rupees depending on the store and the quality of the bag.

I would like to share how I am coping with the situation. Well I had my own way of responding to the extra cost of my shopping.  Since I am a shopper who always plans before going to shopping after the initial discovery that I had to pay for the plastic bags, I simply started carrying some of the old plastic bags in my laptop bag and in my car. So once I have kept everything in the shopping cart and simply load everything back in the cart. To everybody’s amusement I carry the stuff in the shopping cart to the car and then load the stuff in the bags waiting in my car’s boot. This whole exercise takes about 5 minutes extra per trip. I also tried some of the jute bags being sold by stores in name of environment and supporting some NGO, but while jute bags look good they are not practical when you are buying groceries, though they come handy when you are buying only a few items.

Now some of you may think I am doing this to save 10 Rs on the bags, but the reasons I have are more pious:

1.       With every plastic bag I don’t buy we save some amount of green house gases and help to keep mother earth more green.

2.       Second reason is more materialistic, why should I pay for something that actually I already have (inform of old perfectly usable plastic bags).

The Missus for a change is supporting me and every time on the money saved on the plastic bags the kids get to enjoy ice cream, so they are fully supportive in my green initiative and actively help in putting stuff in the bags.

To read more about my retail therapy please read these earlier posts:

1.       Gift Coupons

2.       FDI in Retail

Thanks for reading.

FDI In Retail Part IV

Those of you think that big retail make big profit please think again. 
Below is a link to the latest available financial data for WalMart the gold standard in any currency for efficiency of retail operations.
Let me ask you to make a guess how much net profit margin you think WalMart makes?
40% ?
30%
10%
5% ?
Well even if you choose the last no at 5% you will still be wrong by a big margin as the Big Daddy of retail makes a margin of only 3.6%.
Please check it out here:


http://finapps.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=wmt


The star of Indian organised retail Future Venture ( Big Bazaar) is actually making losses  for many years with a net margin of negative 5.12%:


http://www.moneycontrol.com/financials/futureventuresindia/ratios/FVI


WalMart is big and successful because it uses the money it has very effectively and the Receivable turnover  is a cool 88% and that is what gives them the cutting edge not obscene profit margins. Compared to this the neighborhood kiryana store makes a margin of almost 30% and is reluctant to give you a bill as he does not want to pay taxes, due to same reason he does not want to accept credit and debit cards.
I think I have made my point fairly clear, big retail is not about profit margins it is about a more efficient operations with economies of scale, investment in infrastructure and creation of jobs for the youth of this country.


To read the earlier posts in this series please click here


http://moneyandus.blogspot.com/2011/12/fdi-in-retail-part-iii.html


Thanks for reading.

FDI In Retail - Part III

Now let us look at the other argument against FDI in retail:

We are selling India to MNCs: Believers in this argument scream hoarse that we are repeating the episode in the Indian history when East India Company came to India for trade and slowly captured the whole country. Well I think people forget that India as well as the world has changed. With the changing world India has also changed and today India is one of the largest economies in the world, with a 7%+ growth rate per annum. No company in the world is big enough to dictate terms to our country, not even  the biggest of companies  in world can match the power of the Sovereign Indian State and its billion plus proud Indians.

Hindi main kahun to: “Hindustan koi rasgulla hai, kee koi bhee ayega or hudup jayega?”

But let us move away from Bollywood dialogues and look at a global world. How can we cheer when a Tata goes out and buys Corus or a Mittal gobbles up Acelor in Europe or a Sun Pharma digests Teva in Israel? We have millions of Indians living in US, Europe and every other part of world and buying companies and real estate there and we feel nobody should come to India and buy companies or start business here! This is nothing but misplaced Xenophobia and hypocrisy masked as holy war to save the kiryana store to hide the ugly face of vote bank politics.

Here are some of the benefits that Indian consumers and farmers will get from direct FDI in multi brand retail:

1. Lower price for consumers
2. Better margins and price for farmers as the big retailers buy directly from farmers and cut the middle men.
3. Exponential growth in infrastructure with specific focus on cold store chains and ware houses.
4. Growth in job opportunities for both semiskilled and skilled workforce in the retail stores.
5. Increase in collection of both direct and indirect taxes which will further fuel the growth and investment in infrastructure.

Considering all this my vote is for immediately allowing FDI in retail as the benefits far outweigh any potential negatives being trumpeted by vote hungry self styled messiahs of masses.


To read the earlier posts in this series please visit here:



http://moneyandus.blogspot.com/2011/11/retail-and-fdi.html


http://moneyandus.blogspot.com/2011/12/fdi-in-retail-part-ii.html

Thanks for reading

FDI In Retail - Part II

Let us take the debate on FDI in retail a little further.

The arguments against the FDI in retail are:

1. MNCs will kill the small retailer.
2. We are selling India to the foreigners.

Let us look at the first one first.

If the small retailer  is destined to die, he will not need a Wal Mart or Tesco to kill him, the big boys of Indian business are enough to kill him. Some of the topmost business houses in India be it Tatas, Reliance, Birlas, Goenkas, Rahejas, Mittals all are already present in organized retail.  Each one of these top business houses have enough of their own capital as well as access to borrowed and/or equity capital whenever they may choose to raise it.

So do you really think the big MNC guys will come and start targeting the neighborhood kiryana store whose monthly sale probably will be less than the electricity bill of a large hypermarket?

Even if the MNCs start killing Indian retailers it will first be the big Indian retailers, and they should be the ones who should worry about their survival. But none of them sound worried to me, most of them are planning to either take the MNCs heads on or get into some kind of joint venture with the MNCs, like Mittals of Bharti fame already have with Wall Mart for the cash and carry business and backend logistics. So this whole logic of MNC killing the small guys does not hold truth, if the small guy has to fade away he will fade away with or without MNCs coming to India.

We will look at the other argument in the next post. Would love to hear from you on this one.