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The issues associated with the entry of mega firms in retailing are often discussed from the perspective of the consequences it can have on the potential for survival and continuance of the unorganised   retail sector, which is currently a major provider of employment. These are often vociferous enough to create a circularity problem by shaping public attitudes and weakening the set of sample space of ideas. As such ,it is only pertinent that the concerns about consumer welfare outcomes of the influx of retailing giants - both domestic and foreign - be debated, so that they can be appropriately  addressed.

The observations that follow on consumer welfare effects are  a few  possible conjectures and are not explicitly supported by reasoning based on research data. They are, in part, grounded on theory and the rest are dispassionate hypotheses, which are the only plausible courses of action that can be pursued at this stage when precedents are scarce.

The faction that favours the upcoming trend in retailing focus on the efficiency in the allocation of resources ensured by an increasingly competitive and deregulated retail environment. The advantages that accrue to these large retailers on account of their inherent professionalism, possible disintermediation by by-passing the existing supply chains ,their   ability to bargain on favourable terms with the manufacturers, their access to sophisticated technology, innovations and efficient supply chain management, they argue, are most likely to get transmitted to the consumers in the form of best possible choices made possible by  adequate supplies  of high quality goods at competitive prices to consumers. Reorganization of logistics should ultimately benefit the consumer by reducing delays and wastages which otherwise are  deadweight loss es for the society.  Buyers should also benefit by well researched customization processes where they are assured of products that suit their needs, purses and tastes. Economies of scale combined together will enable the firms to outsource production volumes at  reduced costs, and this is most likely to be  be passed to the consumers. Visual merchandizing and  lavish space  must be expected to ensure proximity to the consumers who will be able to make considered choices on the basis of touch and feel. There is scope - one should reasonably think- for convergence of interests of the retailers and the consumers as maximization of consumer welfare becomes a predominant concern of these firms for survival and growth in the market place.

On the other hand, the opponents argue that, in the absence of organized consumer movements, the power imbalance between seller and buyer may cause the advantages to heavily get tilted in favour of the massive and powerful selling organisations. They may resort to predatory pricing to wipe out competition or may ignore the ordinary man on the street by failing to cater to the needs of low-value, high-frequency customers and thereby make poor consumers disproportionately disadvantaged.  It is worth citing here that, though not currently researched and supported by objective empirical findings, qualitative and observational outcomes provide strong evidence to the hypothesis that the poor in the current unorganized retailing scenario ‘pay more for less - both quantity wise and quality wise’.

Suspicions are also raised as to whether the extant but meager mechanisms for consumer protection will be thoroughly flouted by these mighty retailers. As against the common belief, technology enabled transparency in dealings, ‘no questions asked returns and exchanges of goods once sold’ ,well established consumer complaining channels, formalized consumer dissatisfaction redressal mechanisms etc. are more likely to reinforce the endeavors made by legislative procedures to ensure consumer protection. 

Another potentially risky outcome anticipated is that these mighty retailers may campaign a consumerist culture compelling people to spend more than what their needs and size of their purses warrant. Counter arguments are put forth by others that the possibility is not specifically generated by large scale retailing alone. Themes and activities around actual and concocted festivals are used even now, to boost sales and to make people purchase things which are not their priorities. However, one cannot rule out this possibility and its potential negative consequences on individual savings,resource mobilisation, aggregate investments and ultimately on economic growth. One need to also consider a question that is often asked by a block of economists as to whether consumer spending is altogether bad for the economy?

It is also feared that these massive retailers, as a consortium, would dictate trends especially in fashions and corner the consumers or lobby enough to maintain  prices  above the competitive level. Opportunistic strategies for keeping ones margins and markets intact cannot be ruled out at all.  Trends may be initiated and propagated collectively by the stores compelling and tempting people to buy and replace more often, thus generating and sustaining psychological obsolescence. One could also observe that at the same time, this can have definite backward linkages in the form of more production and more employment.

Will competition be wiped out by collusion? Transnational companies are very often accused of collusion, cartelization, entry prevention and circumvention of national anti-monopolistic legislations and of indulgence in attempts toward market dominance which reduce the contestability of the market. These and other anti competitive activities are of course, detrimental to the interests of both consumers and businesses. The potential vulnerability due to such behaviors that disturb the operational efficiency of markets cannot be ruled out, and to that extent, therefore, policy framers have to be extra -careful while choosing formal contractual frameworks.

On the possible cry over the consumers getting enslaved by store loyalties, one could as well observe that  the type of personal ties and social relations with the seller which mark the current retail scenario, which very often restrict the propensity to vote with feet, is absent in large scale retailing. The traditional Indian thrift makes value for money and other benefits all the more important for the new retailer. Unhindered customer loyalty is a thing of past. Consumers have affinity for the west, but at the same time, they expect value for money and personalized services which they enjoy in the corner stores.

The impact on rural consumers is usually pointed out as another negative feature of such organised retailing. Rural consumers have different needs and requirements. Many of them are cash poor, but not time poor. How far and how fast the instant breakfast cereals and baked frozen beans will enter their shopping bags is yet to be ascertained. As long as the new retailers concentrate on urban areas or in urban conglomerates, the rural consumers will continue more or less in the same pattern of unorganized retailing.

One could highlight the signals that these new ventures can transmit and cause indirect macro impacts on markets and therefore on consumers’ welfare. Just as the margin free markets of yester years signaled the unorganized retail sector the need to look into their own strategies, these mega- outlets may compel changes in the existing small scale retailing scenario and this is sure to turn out to be  pro-consumer.

There are innumerable questions that need to be answered such as: Why consumers should opt for another system? Are the present retail market configurations efficient? Is there any consumer exploitation? Are the buyers able to make informed choices? Is there any power imbalance between the buyers and sellers?  Will it be possible to induct normative parameters for monitoring the consumer friendliness or otherwise of these mega firms? Will the governments be constantly pressurized to endorse policies which facilitate rent seeking by such massive firms? What impact they will generate on the contestability of markets? etc. These and other questions need to be seriously looked into in the context of hitherto unfinished reforms.

(This paper is published in 2008 - Copyrights reserved)

Dr. Alice Mani Jacob

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