The rosy picture and tall claims about FDI in retail look great if one goes by the accounts coming out of the UPA Government, but they are just great on paper. Fortunately for us, there are so many studies on the ill effects of Walmart and such other megastores on local economies (research papers and the like) that we don’t need to scratch our heads thinking about it.
The claim that it will not hurt local retailers is baseless. In a zero-sum game, when there is a fixed amount of money to be spent on retail purchases by households in that area, large stores capture sizable amounts of the market and thus local retailers lose equal amounts of business as per study by Blair and Kumar in 1997.
One of the claims the UPA Government makes is that it will not hurt most of the retailers as such stores are allowed only in cities with populations of more than 100,000. While that argument alone proves it will hurt at least some retailers, let us go deeper and examine the argument more closely
Superstores require huge spaces — for building as well as for parking. A superstore may need anything between 100,000 to 250,000 square feet of building space and almost 3 times that for parking space. Given the compact nature of our cities, it would be impossible to find such open spaces within cities’ normal residential limits. Even if such spaces can be found, superstores may not go for them as customers normally like to avoid traffic and congested areas. When a superstore is opened in the outskirts of a city, isn’t it going to attract customers from the surrounding villages and suburban areas? Retailers from the surrounding villages will suffer as a result. Another side effect of superstores in the USA is the downfall of downtown areas. Once blustering retail shopping hubs, many such locations have now turned into ghost towns.
In the USA, between 1992 and 2002, the grocery industry lost 13,000 stores and thousands of jobs as per Retail Forward. As per Iowa State University study, during the first decade after Walmart arrived in Iowa, the State lost 555 grocery stores, 298 hardware stores, 293 building supply stores, 161 variety stores, 158 women’s apparel stores, 153 shoe stores, 116 drug stores, and 111 men’s and boys’ apparel stores. Fast forward these numbers 10 years from now for any given Indian city — say Pune — and think about the impact on the city as well as surrounding suburbs and villages.
When a buyer spends money on local retailer most the money stays within the community. The small retailer’s world — family, spending, suppliers, banks, schools, accountants etc. — is mostly local and so the money will circulate in the local economy and help it thrive. For the superstore nothing will be local except some of its employees, thus taking away money from the community without giving much in return. Various studies suggest that superstores return only 8 to 10 per cent of their revenue to local economies mostly in the form of payroll. The rest of the money flows out of State to the corporate headquarters (which will not be in India) and to the overseas suppliers.
Another protection given by USA Government is that superstores must source 30 per cent of the goods from India. That means 70 per cent of goods will come from other countries! This guarantees that whatever business the superstores are going to take away from local retailers, 70 per cent of that business will be taken away from local manufacturers as well. Superstores will not only hurt retailers, they will hurt manufacturing sector as well.
Currently the threat is from general merchandise superstores like Walmart, however it is not going to stop there. IKEA, a home-furnishing and kitchen store, has already made announcements to enter India. Other sector-specific counterparts like Home Depot (building material, construction), Office Max (school and office supplies), Best Buy (electronics and appliances), Walgreen (drugs and cosmetics) etc. will further alter the structure of local retail markets and force small town retailers to change their ways of doing business or force them to go out of business.
As per a study by Stone in 1997 in the USA, on the one hand, mass merchandisers threaten the survival of many small town retailers because they offer low prices and a wide range of goods all under one roof. Research says the expansion of stores like Walmart (that offer one-stop shopping) and sector-specific stores like Home Depot have forced some local retailers to close their doors because they cannot compete with these large, nationwide chains.
But not learning from others’ mistakes seems to be a very Indian thing to do.