Tuesday, January 06, 2009

The Economics of Consumer-Supplier: Indian Perspective # 3

This post is prompted by an article I read in the Economic Times of India of today titled "The devil is not really in the retail" (this text is also posted to the letters to the editor)
I agree with the bottom line of the article that we have to increase (sustain + increase) private consumption. What is mixed up is the relationship between the private consumption and the modern retail. For one, what kind of private consumption should be increased? Daily consumption items or lifestyle items? What is modern retail? How is modern retail making it possible for increase in daily consumption items and lifestyle items – this is the area which is still gray. Rather, it is shade of higher grey towards the consumer lifestyle items to which the modern retail is as of now related to in India.
The so called modern retail is not a vehicle to provide a public place to meet. That is the business model to entice spending while doing so. There is no social good being done by the modern retail. It is in fact creating a burden on the existing infrastructure by not planning its operations at a location where it can benefit from the economies of scale and lower costs.
The advent of modern retail and discounting on daily consumption items is no backed by the quality parameter (in the case of unbranded goods manufactured by leading brands). The use of purchasing power to enable a discount is not reflected in the delivery of quality goods. This is evident from the fact that the so called modern retails are branding their consumer items under own or third party brands and packaging without having any certified quality standards. They do not confirm to ISI or
BIS or any other published transparent self created standards. Creating a discounting modern retail model and expecting it survive in the long run without investing in quality is not going to be profitable to the consumer and hence to the retail industry.
The modern retail industry believes it needs to be in the thick of consumers and hence is plagued by high costs. If it was smart enough to not incur costs but let the consumer incur the reach costs – it would be strategically located in a better, bigger, convenient (to reach with public transport or create a transport model) and cheaper location – to benefit from tax structures and lower cost of utilities. The modern retail industry is profitable in spite of the so called cost structures and inefficient government policies – well then there is scope for further discounting and giving flip to consumer demand. Which demand – of course that is the question?
The modern retail industry would do good for itself (thru doing good for the consumer) if it lobbied with the government to update, modify, change the outdated and inefficient measures / standards enabling the consumer get a truly better quality goods for consumption –both daily consumption and lifestyle.

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