[Economy] The FDI in Retail business pro-cons Single brand vs Multibrand Retail

[Economy] The FDI in Retail business pro-cons Single brand vs Multibrand Retail

In the fond memories of Dev Anand,

What’s the difference between Single brand vs Multibrand retail?

Single Brand retail

· Nike Company opens outlets in A’bad, Banglore, Delhi and Mumbai selling nothing but Nike Shoes, Nike wrist-watches and Nike t-shirts only.

· This is single brand retail.

· FDI in Single-Brand Retailing was permitted in 2006, to the extent of 51%.

· These were mostly outlets for sportswear, luxury goods, apparel, fashion clothing, jewellery, hand bags, life-style products.

· But neither the Political parties nor Local Kiranawala raised any voice against this,why? Because these are ‘high-end’ luxury items for brand
conscious upper middle class and rich class people. It doesn’t hurt population at large. It was not like people would stop purchasing from local
garment store to get Nike or Adidas.

Multi-brand retail

· Big Bazaar opens mall in above cities: selling t-shirts of multiple-brands such as Reebok, Nike, Adidas, Allen Solley, Van Huesen, Peter England etc.
+and+ they also sell unbranded t-shirts (you know those buy one get three t-shirts free from unknown companies.)

· So this is multi-brand retail: when an outlet sells a product (tshirt, tie, shoes anything) of more than one brand.

Retail means when product is sold to the ultimate consumer (common man)


Argument against FDI

Anti #1: will lead to mass-unemployment

1. Retail sector in India is the second largest employer after agriculture. Almost 33 million people involved here.

2. Now the problem part: “Disguised unemployment”. Father and two Sons running a farm, producing 200 kgs of wheat. You take out any two members,
the production still remains 200 kgs. Same problem goes with family owned-operated retail stores, the intermediaries and middle agents.

3. What should be done? Obviously one of the two sons ought to get himself in other sector (service, construction, manufacturing, industry, etc) But
there is lack of opportunities, the manufacturing sector is not growing at the pace. So the argument=: Displaced retail-operators will not be absorbed
in other sectors. This FDI will lead to unemployment.

Although this “unemployment” argument is flawed because

1. Walmart cannot open malls in every nook and corner of India. Their electricity, staff and security costs will surpass their profit margins.

2. Customers can’t goto Walmart on daily basis for ‘attractive discounts’ because the petrol cost (and time wasted in traffic) will negate the discount
on small purchase. So they’ll be using local small-retailer for daily requirements of bread, milk, newspaper etc.

3. Did STD booth-operators become unemployed after advent of mobile phones with zero roaming charges and free incoming? Nope, they diversified and
started running Xerox and cybercafés.

4. Did local Udipi owner ran out of business because of McDonald / KFC? Ofcourse not.

Anti #2: Predatory pricing

· Walmart or any other MNC retail mall, for the first 3-4 years they’ll give heavy discounts and seductive offers, even if they make loss in the deal.
Result : all the customers in a particular city are hooked to walmart only.

· The smalltime retail players cannot run business giving such heavy discounts, they close down. Once all competition is eliminated with this
‘predatory pricing’ Walmart will slowly stop giving discounts and recover their losses by increasing the MRP.

· Since these big MNCs have deep pockets, they can affort this sort of loss. But in the long term, they recover everything.

· Same way Once the small time retailers are out of business, Wal-Mart will start exploiting farmers, paying them extremely low money for their produce, because
now Wal-Mart is the sole retailer in the city.

counter arguments: ‘Predatory pricing’
1. Customer thinks of Traffic, time and petrol cost involved before visiting Walmart everynow and then. Not like someone would go 10 kilometers, just
because the mall is giving Rs.3 discount on apple juice.

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