GRALBUS-India’s Embrace of Foreign Retailers

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October 9, 2012


India’s Embrace of Foreign Retailers

By VIKAS BAJAJ


PATNA, India — A long-festering controversy about whether India should allow foreign retailers like Wal-Mart into the country has often been cast as a battle between millions of small shopkeepers and large corporate interests. But in much of the country, including in this eastern city, the issue often divides Indians as much by age as by their livelihoods.

Those younger than 25, a group that includes about half the country’s 1.2 billion people, appear quite open and eager to try foreign brands and shopping experiences, researchers say. They already while away their afternoons at Western-style malls like the year-old P&M mall here where they try on T-shirts by Benetton, eat pizza from Domino’s and watch movies in a Mexican-owned theater chain, Cinepolis.

Aakash Singh, a 20-year-old college student who recently came to the mall here one afternoon, summed up his generation’s attitude toward foreign retailers this way: “Absolutely, they should come. The country will benefit.”

But many older Indians who came of age in an earlier era of socialist policies say they are not entirely comfortable with the idea of big-box stores and sprawling malls. They worry that foreign companies will siphon profits and business from Indian competitors, forcing millions of family-owned shops to close.

Isahak Sanatan, 34, counts himself among that worried generation even though he has worked for foreign telecommunications companies for most of his career. “Why are we allowing outsiders” into this industry? he asked during a recent visit to the mall with his wife and 3-year-old daughter. “The foreigners will take the profits out of the country.”

So far, the older generation is prevailing. After years of debating the issue, Indian policy makers last month allowed big foreign chains like Wal-Mart and Tesco to set up stores in the country. But, in an acknowledgment of the significant dissent that remains, each of the country’s 29 state governments was granted the ability to forbid foreign-owned outlets in their territories.

Leaders of most Indian states, including Bihar, of which Patna is the capital, have said they will not allow foreign retail outlets to operate within their borders. Companies like Benetton and Domino’s that sell goods under a single brand or through franchisees had already been free to set up stores with Indian partners.

The policy change has touched off a political reaction, with one important regional political party withdrawing support from the national governing coalition led by the Indian National Congress Party. Analysts say the opposition from many politicians reflects in part the fact that the median age of Indian ministers is 65, compared with 25 for the general population.

Also, the young have so far been less likely than their parents to vote, so their strength in numbers has not yet compelled policy makers to pay much heed to them.

Still, the government of Prime Minister Manmohan Singh appears to be counting on their support. Many of those in their 20s or younger were born just before or after the country began introducing free-market policies and opening its economy to greater trade and foreign investment in the early 1990s. Last month, Mr. Singh invoked the benefits of accepting foreign retailers for the young in a rare address to the country to defend the change in policy.

“Foreign companies are creating jobs for our youth — in information technology, in steel, and in the auto industry,” he said. “I am sure this will happen in retail trade as well.”

India’s youth grew up during a time when foreign brands like Coca-Cola, Suzuki and Levi’s became touchstones across the country. Some foreign companies have become ingrained in the fabric of Indian culture. For instance, many Indians now serve Cadbury milk chocolates at religious festivals, along with traditional sweets.

Moreover, unlike their parents, today’s young people were not as indoctrinated by their schools and families to believe in swadeshi, a slogan that roughly means self-sufficiency and that was championed by freedom fighters like Mohandas K. Gandhi during their struggle against Britain.

“Now, the consumers are essentially the young generation who are a post-’80s product,” said Shaibal Gupta, member secretary of the Asian Development Research Institute, a research group based in Patna. “The people born in the ’60s and ’70s had some idea about the freedom movement,” but the newer generations do not.

Still, retail analysts say change will come slowly to India’s $500 billion retail industry, more than 90 percent of which is still dominated by small family-owned stores. Young Indians do not yet have as much purchasing power as their parents, for one thing, though because many live with their families they often have disposable income to spend on goods like clothes and cellphones.

Indians ages 16 to 23 already account for a quarter of the spending on clothing and 16 percent of spending in restaurants in India’s 50 biggest cities, according to Technopak, a research and consulting firm. The young also tend to spend more money in modern retail stores and on foreign brands than their parents, who tend to shop at traditional outlets and buy more Indian products.

“This is a segment that will flourish over the years because there are so many young people,” said Saloni Nangia, president of Technopak. “A lot of people are taking part-time jobs or are working so that gives them a lot more disposable income.”

The growth has been particularly strong in smaller cities like Patna, which has two million people. A recent study by the Boston Consulting Group found that retail sales were growing by about 15 percent a year in these cities, compared with 12 percent in bigger cities like Mumbai and New Delhi.

Patna, in particular, is seen as a shining example of a newly resurgent Indian heartland. Bihar, one of India’s poorest states, had long languished under incompetent and corrupt leaders. But over the last seven years, a new administration has brought the state’s crime rate under control, built new roads and improved school enrollment, allowing the economy to recover.

The P&M mall, owned by a prominent Bihari film director and producer, Prakash Jha, is a prime example of the city’s renaissance. Though small at 225,000 square feet by the standards of most malls in the United States, or even in Mumbai, many city residents say they look at it and the foreign-brand stores in it like Puma and Nike with pride. On any given afternoon, the mall is filled with college students, families and seniors. Many come just to take a ride on the escalators, which are still novel here.

Benetton, the Italian clothing chain, has two franchised stores in the mall and another elsewhere in the city. It will soon add two more outlets in the city, which has been one of its best markets among India’s smaller cities, said Sanjeev Mohanty, managing director of Benetton India. The company has sales of nearly 100 million euros, or $130 million, and is growing more than 20 percent a year.

“In the last five years, India’s retail landscape has changed quite dramatically,” Mr. Mohanty said. He cited two reasons: “increase in income in big and small cities, and the second is a lot of real estate development.”

Alisha Manubansh, a 22-year-old college student, is one reason for the company’s success. She said she and her friends come to the mall at least a couple times a week — as much as their parents will allow them to and spend a lot of their time at Benetton, in part because it is the most fashionable brand in the mall.

“Since this mall opened, we don’t like going to other stores,” she said.

Other patrons like Abhishek Kumar, a 24-year-old student, come primarily to watch movies, eat at the food court and window shop. “We first come and look and see what’s available and what’s on sale. Then we come back later to buy,” said Mr. Kumar, whose family owns a cloth store about a 10-minute drive from the mall. “Our resources are limited.”

Though Bihar has said no to big foreign retailers that sell multiple brands, Wal-Mart’s top executive in India, Raj Jain, said the company saw a huge market in places like Patna, which he argued were filled with “value-conscious” consumers like Mr. Kumar who would be drawn by the chain’s low prices.

Many in the older generation say while they are not entirely comfortable with the move toward modern stores and foreign brands, they think little can be done to reverse the tide.

Mr. Kumar’s father, Anant Kumar Sinha, who rarely goes to the mall, says he has seen the changing tastes in his business. Unlike their parents’ generation, most young people are not interested in buying cloth and taking it to a tailor. His sales have been stagnant in recent years as the youth move to off-the-rack clothes from domestic and foreign labels.

“The kids of the poor are also wearing jeans and T-shirts,” he said. “The new generation does not care about the way it was done before.”


Neha Thirani contributed reporting from Mumbai.



Source: www.nytimes.com