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SEEDShttp://seedsnapster.blogspot.in/2009/12/organized-vs-unorganized-retail-sector.html

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Tuesday, December 29, 2009

ORGANIZED VS UNORGANIZED RETAIL SECTORORGANIZED VS UNORGANIZED RETAILHISTORY OF RETAIL IN THE WORLD-According to world history, the Romans are the first civilization to establish a sophisticated form ofretailing. Numerous small shops were set up with centers. In fact, ancient ruins indicate that theworld's first department store was in Rome!! With the fall of this empire, retailing disintegrated. Bythe 12th century artisan and tradesmen began to organize into "guilds" and opened up smallshops. 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 4Hungarian immigrants. Simon Lazarus, an immigrant from Poland, opened a men's clothing storein 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 intothe city. From here, chain stores evolved. Technology improved. The Internet boomed! The rest isthe making of history!TYPES OF RETAIL STORES-Both organized and unorganized retailing is found in most countries throughout the world. Indiaand China are strong examples of countries in which unorganized retailing dominated theirmarkets. Today these countries have a growing economy because of the influx of organizedretailers into their markets.

In any country, particularly in developing & underdeveloped countries, we can fine 3 types of retaillike1.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 rulesand regulation of govt.2.Unorganized Retail-They are owned by a private individual & based on the principles, but notowned by any private company.3.Grey Marketers- These are unauthorized small stores which are owned by any privateindividual. 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 to36 per cent in Brazil and 55 per cent in Malaysia (Table 2.2). Modern retail formats, such ashypermarkets, superstores, supermarkets, discount and convenience stores are widely present inthe developed world, whereas such forms of retail outlets have only just begun to spread todeveloping countries in recent years. In developing countries, the retailing business continues tobe dominated by family-run neighborhood shops and open markets. As a consequence,wholesalers and distributors who carry products from industrial suppliers and agricultural producersto the independent family-owned shops and open markets remain a critical part of the supply chainin these countries..Country Total retail stores in the world & their percentage(US$ bn)SHARE OF RETAIL % OF RETAILUSA 85JAPAN 66

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CHINA 20U.K. 80FRANCE 80GERMANY 80INDIA 4BRAZIL 36

RUSSIA 33KOREA 15INDONESIA 30POLAND 20THAILAND 40PAKISTAN 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 & popstores. 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.Thecompanies are Bombay Dyeing Kumars, Raymonds etc. Later Titan launched retail show rooms inorganized sector.If you will follow the above examples, there are great changes occurring in retail sector. The retailindustry 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. Grossdomestic 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 macroeconomicand retail-specific variables through their Global Retail Development Index (GRDI). For the lastthree years (2005, 2006, and 2007) India has been ranked as number one indicating that theCountry 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 lessdependency, and demographics placing incomes on urbanization are some of the major factorsfueling 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 undoubtedlygives 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, fromsmall 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 smallbut spread in all local markets, providing the convenience of a neighborhood kirana store but withprocurement 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 supplychain in the country. A recent study by CRISIL has estimated a current annual total loss of aboutRs. 1,000 billion in the agricultural supply chain, 57 per cent of which is due to avoidable wastageand 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 directlybypassing the various intermediaries who add more costs than value to the food chain. They areinvesting 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. Theyare also employing a large number of unskilled workers for sorting, grading, packaging and

labeling. All these will enhance farmers realizations, improve quality of products at the shop andreduce the ultimate consumer price.

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3.Link with Manufacturing-The Planning Commission has identified four sectors as the majoremployment generating sectors for the Eleventh Plan period, 2007-12. They are: (i) foodprocessing industry; (ii) textiles and clothing; (iii) tourism; and (iv) construction. Of these sectors, allexcept tourism are getting a fillip with the growth of organized retail. Again, the small and mediumindustry (SMI) sector is getting advantages with the emergence of organized retailers by becomingtheir suppliers. Modern retail will catalyze the development of the SMI sector in the country.

4.Boost to Exports- Organized retails link with exports comes through foreign players.International retailers look for sources around the world and a country in which they operatebecomes a source for their global sales. Some of the international retailers that have plans forIndia in the future have already developed suppliers in the country and have started exporting fromIndia. For example, Wal-Mart exported an equivalent of US$ 600 million, and IKEA about eurosfrom India in 2006-07.5.Impact on Growth and Productivity- Organized retail will enhance the growth and productivityof India by helping the farmers, consumers and other sectors by providing high quality products.organized retailing will remove various inefficiencies that characterize the present Indiandistribution system, which in turn will provide better price for the farmers and suppliers on the onehand, 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 mostof 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 businesswill 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 theemployment potential of the Indian economy. While providing direct employment in retail, it willdrive the growth of a number of activities in the economy which in turn will open up employmentopportunities to several people. It may adversely affect employment in unorganized retail and thetrade intermediaries associated with the traditional supply channels but the additional jobs createdwill be much higher than those that are lost. An important point to be noted is that while the jobsthat organized retail displaces are the low-end, low-quality, underproductive ones, the new jobscreated 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 familylabour than hired labour; on an average they employ 1.5 persons per shop from the family, andhired 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 forunorganized retailers as the mean distance to the residence for consumers at unorganized outletsis 1.1 km compared to 2.6 km for consumers at organized outlets. A majority of consumers walk totraditional retailers because it is convenience to reach.3.Credit Facilities- Consumers get credit facilities in small unorganized retail stores and can makea deferred payment which is not possible in organized retail stores.4.Purchase of small quantities- Its a typical attitude of Indians to purchase in small quantities ofvarious 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. Boththe formats have advantages and disadvantages. Complete organization of retailing stores willcreate unemployment, poverty & may be bad for the poor consumers also. At the same time a fullyunorganized retail format will adversely affect economic growth, govt. revenues and will be ahinder 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 organizedretail expansion and the picture still remains unclear as to its future direction. The study advocates

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a balanced approach to retail and suggests that the government plays a major role in shaping itsfuture course. There is no doubt that traditional retail has been performing a vital function in theeconomy and is a significant source of employment. However, it suffers from huge inefficiencies asa result of which consumers do not get what they want, and farmers often get prices for theirproduce much below what is considered fair. In contrast, organized retail provides consumers witha 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 fromorganized retail has affected the business of traditional retailers but they are making efforts to stayon. In their struggle to face this competition, they are handicapped by a lack of access to formalcredit from commercial banks. As in other countries, government policy can and should play animportant role in modernizing the unorganized sector and improve its competitiveness. On theother hand, a policy of protection of traditional retailers by restricting organized retail will harm thegrowth prospects of the country by foregoing the enormous benefits that are generated byorganized retail. However, the following measures can be taken to solve the paradigm of organizedand 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 againstpredatory 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 maybe called as REORGANIZATION OF RETAIL SECTOR.

Submitted to- SEEDS

Submitted by- Aparajita SahooDate: 29/12/2009