Monday, May 20, 2024

A Tale of Retail

India’s burgeoning retail sector is caught between a rock and a hard place, between subsisting on thin margins and rising client expectations. The government needs to put in place its trade policy with alacrity

By Sujit Bhar

There seems to be two major impediments on the road to the development of ethical trade practices in India. This is more pronounced in the fair development of the retail industry, focusing on retail chains that are coming up across the country. The first impediment is economic: India is an extremely price sensitive nation and profits across sectors are pressured into wafer thin slabs that force companies to cut corners. The second is the existing legal system, which has barely improved or adapted to current needs and processes.

A recent example can put this in perspective. Recently, the Bengaluru Urban first additional district consumer disputes redressal commission ordered multinational furniture retailer Ikea to pay a woman Rs 3,000 for charging her Rs 20 for a carry bag.

According to media reports, the woman, Sangeetha Bohra, had filed a complaint with the consumer court after she was charged for the carry bag at the Ikea store in Nagasandra on October 6, 2022, despite her purchase of Rs 2,428 from the store.

The amount was small, but completely uncalled for, and the bag also contained the Ikea logo. It has been reported that the store’s staff informed Bohra that the fee was compulsory and non-negotiable. Bohra considered this as an unfair trade practice, especially when the bags have the company’s logo on them. Also, there was no prior information available to Bohra that she would be forced to buy the bag.

She paid up, but later served Ikea with a legal notice, asking for a refund. Ikea refused to accept that this was an unfair trade practice and refused the refund. Bohra then went to court. The judge, while handing out the penalty (Rs 20 refund, plus Rs 1,000 penalty plus Rs 2,000 as court expenses), also made it clear that the expenses associated with making goods deliverable are the responsibility of the seller, meaning Ikea should have borne the cost of the bag.

The issue might sound small—and Ikea, in this instance, was certainly at fault—but such are the issues that sometimes boil over the surface and become major problems for the retail industry in India.

Significant growth

According to the Retailers Association of India (RAI), the organized retail sector witnessed a significant growth of 34 % in FY 2022-23, surpassing pre-pandemic sales figures from 2019-20. This sounds like good news, till one looks a little deeper and finds issues that have seen the demise of India’s great retail giant The Future Group.

According to experts, the Future Group skidded off the rails, because of its sheer speed of acquisition and expansion, resulting in an unserviceable debt burden. At the same time, retail is a sector where incessant growth is a precondition, as is diversification. Hence, for groups which have to acquire pricey showroom space, along with storage capacity, debt is the only way out.

This critical factor is overcome by companies such as Reliance Retail, through the sheer size and capacity of its backers, Reliance Industries. Future Group did move too fast, but it was a slippery ride from the start, anyway. The excess burden led to a rating downgrade, making the cost of further expansion even more expensive. It was an inescapable downward spiral.

The key issue in this was the discount store nature of the Future Group. In this price sensitive country, it was a stretch, keeping prices down at levels that people liked, and Big Bazaar tried its best, but failed.

The legal issues

The other major issue is legal. According to a recent report by Teamlease Regtech, a regulatory technology company, running a retail sector company in India could be not just difficult, but risky too. It says that there is a high risk of getting imprisoned.

The report focuses on the fact that a large number compliance laws in India have criminal clauses. As an example, it said that “a retail chain with multiple retail establishments having operations across six cities and two states and a corporate office in a single state deals with 3,182 compliances in a year. Among them, 1,192 (or 37%) compliances contain imprisonment clauses. Approximately 43% of these clauses are contained in state laws while the rest are within Union laws. Labour laws account for as high as 54% of all the clauses.

Hence, the very compliance framework put in place to safeguard the customers has increased the complexities of business in the retail sector in India. Add the wafer thin margins that companies work with and you realise the source of strange phenomena such as Ikea charging Rs 20 for a bag to a customer who has made a reasonable purchase.

Retail trade policy

What is needed is a national retail trade policy. Despite the fast spread of retail lines in India, the National Retail Trade Policy is at this point under development by the Department for Promotion of Industry and Internal Trade. It has sought inputs from 16 departments and ministries over the policy as it will be geared towards the overall development of the retail industry.

The policy seeks to focus on the development of physical infrastructure across the distribution chain, promotion of skill development and improving labour productivity. Over and above, it intends to focus on traders’ welfare, accident insurance, pension schemes for traders. This is expected to also cover self-employed persons and shopkeepers. It has also proposed a national traders’ welfare board.

That brings into the fold the kirana stores that were supposed to have died out in the push for big retail. Incidentally, the number of compliances for kirana stores are not only way less than those for the organised sector, but are also not that stringently enforced. That leads to two things: First, it allows the kirana store owner to innovate, use small incentives for the customer (free carry bags, for example), while, secondly, it adds further pressure on the margins on the already compressed earnings of major retail stores.

One has to remember that retail stores in this study would not include those that sell premium products. The clientele, margins and operating standards of such stores remain different and in fine fettle.

The organised retail sector in India seems to be caught between a rock and a hard place and the best they can hope for is mere existence, till a national policy is put in place. Till such time, the seller and buyer will both remain at loggerheads over mere trivia that will be termed as unfair trade practices.


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