Indian unorganized retail sector & its challenge

India is the only one country having the highest shop density in the world, with 11 outlets per 1000 people (12 million retail shops for about 209 million households). Rather we can see the democratic scenario in Indian Retail (because of low level of centralization, low capital input and due to a good number of self organized retail).

India started its Retail Journey since ancient time.

In Ancient India there was a concept of weekly HAAT, where all the buyers & sellers gather in a big market for bartering. It takes a pretty long times to & step to shape the modern retail. In between these two concepts (i.e. between ancient retail concept & the modern one there exist modern kirana/ mom and pop shops or Baniya ki Dukan.

Still it is predominating in India

So the Indian retail industry is divided into two sectors- organized and unorganized.

Organized retail sector refers to the sectors undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate retail formats of the exclusive brand outlets, hypermarkets, supermarkets, departmental stores and shopping malls.

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, hand cart and pavement vendors, & mobile vendors, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hardware shop at the corner of your street selling everything from bathroom fittings to paints and small construction tools; or the slightly more organized medical store and a host of other small retail businesses in apparel, electronics, food etc.

Characteristics of unorganized retail——-

Small-store (kirana) retailing has been one of the easiest ways to generate self-employment, as it requires limited investment in land, capital and labour. It is generally family run business, lack of standardization and the retailers who are running this store they are lacking of education, experience and exposure. This is one of the reason why productivity of this sector is approximately 4% that of the U.S. retail industry.

Unorganized retail sector is still predominating over organized sector in India, unorganized retail sector constituting 98% (twelve million) of total trade, while organized trade accounts only for 2%.

The reasons might be-

1. In smaller towns and urban areas, there are many families who are traditionally using these kirana shops/ ‘mom and pop’ stores offering a wide range of merchandise mix. Generally these kirana shops are the family business of these small retailers which they are running for more than one generation.

2. These kiran shops are having their own efficient management system and with this they are efficiently fulfilling the needs of the customer. This is one of the good reasons why the customer doesn’t want to change their old loyal kirana shop.

3. A large number of working class in India is working as daily wage basis, at the end of the day when they get their wage, they come to this small retail shop to purchase wheat flour, rice etc for their supper. For them this the only place to have those food items because purchase quantity is so small that no big retail store would entertain this.

4. Similarly there is another consumer class who are the seasonal worker. During their unemployment period they use to purchase from this kirana store in credit and when they get their salary they clear their dues. Now this type of credit facility is not available in corporate retail store, so this kirana stores are the only place for them to fulfill their needs.

5. Another reason might be the proximity of the store. It is the convenience store for the customer. In every corner the street an unorganized retail shop can be found that is hardly a walking distance from the customer’s house. Many times customers prefer to shop from the nearby kirana shop rather than to drive a long distance organized retail stores.

6. This unorganized stores are having n number of options to cut their costs. They incur little to no real-estate costs because they generally operate from their residences.

Their labour cost is also low because the family members work in the store. Also they use cheap child labour at very low rates.

As they are operating from their home so they can pay for their utilities at residential rates.

Even they cannot pay their tax properly.

Currently the value of the retail market is estimated at around $ 270 billion with a growth rate of 5.7 per cent per annum according to the Indian retail report which creates a big threat for the small unorganized retailers.

The well established organized retail sector in India are Pantaloon Retail, Shoppers’ Stop, Spencers, HyperCITY, Lifestyle, Subhiksha & newly emerging Reliance etc.

Over 20,000 new retail outlets are expected to open within this segment. Major corporate retail like Wal-Mart and have started to try and take over the Indian retail sector.

But in India the unorganized retail is a source foods and other necessities of millions of Indians , major link between rural and urban societies. Not only that it is also act like a convenience store for the customer offering right product at right time at right place. In a country with large numbers of people, and high levels of poverty, this model of retail democracy is the most appropriate

So these unorganized retail sector need to be promoted so that they can organize & supply food to Indian consumer.

Now the question is how to promote this sector-

The suggestions might be-

(a) Establishment of Retailer co-operatives among retailers which is highly required for the sustenance of the unorganized retail sector

(b) Merger and buy-out of weak retailers by a stronger one that would give a new horizon to the small retailer

(c) Setting up of franchisee organization may also help in strengthening the position of the retailers. The franchiser can exert a tremendous control over the way retailing is done.

(d) There must be good network connection between retail organizations, the suppliers and other channel members to use compatible technology so that they can build strong distribution set-up to satisfy the customers.

(e) Setting up of more and more non-store retailing centers would also ensure a strong retailing organization. Non-store retailing makes implementation of modern principles easier and less costly.

(d) Moreover there must be a change in the mindset of the unorganized retailer. They have to understand the pulse of the trend. They have to understand, come forward & lead this change management then only this sector not only can exist but flourish.