Liang Wei, general manager of Lianhua Supermarket, said that although inflation in China is serious, the company will still maintain the 2008 ratio between its operating expenses and its sales volume at the level of 2007.

Lianhua Supermarket plans to open 400 outlets, including large-scale supermarkets, supermarkets, and convenience stores, in 2008. At present, it owns 120 large-scale supermarkets across China, of which 25 are in Shanghai. According to the development plan of the company, it will open 15 new large-scale supermarkets every year and its number of stores in the large-scale supermarket sector will be 126 by the end of this year.

At the end of 2007, Lianhua Supermarket had 3,722 stores, including 111 large-scale supermarkets, 1,731 supermarkets, and 1,880 convenience stores. Its net profit in 2007 was CNY268 million, an year-on-year increase of 11.05%.

“During inflation, customers always prefer to shop in a value retail outlet,” says KE  Venkatachalapathy, business head of Megamart. The increased footfall is reflecting in the sales  figure of Megamart as well. While he refuses to divulge exact numbers, Venkatachalapathy says  there has been a 20% increase in sales compared to the corresponding period last year. Discounts  here vary from 10% to 30%.

“Inflation and discount retailing are directly proportional. Customers normally tend to flock to value  retail stores where they are assured of good quality at reasonable prices,” says Raghunath  Narayanan, MD of Chennai discount retailer Europa.

Discount retailing, a post World War II phenomenon, is an established market practice in countries  like the US. This concept is now picking in India, which is a price sensitive market. Discounts have  always worked well with apparel and factory outlets in the suburbs of many Indian cities and shopping  hubs like Fashion Street in Mumbai and Marathalli in Bangalore which acquired sobriquets as an  export market bear testimony to this. Now inflation has come to the aid of retail majors.

The Loot, a discount chain, has seen footfalls increase by at least 10% in the last few weeks across  its 35 stores in 15 cities. “In Mumbai alone, our footfalls are up by 17% in the last three weeks. In the  first quarter, we had sales of Rs 15 crore. In the next quarter , we expect this to climb upto Rs 25  crore,” says Jay Gupta, MD of The Loot.

In apparel, children’s wear seem to be the biggest beneficiary. “As children, especially toddlers.  Normally outgrow their clothes pretty fast, parents are flocking to discount stores such as ours more  than ever before,” says Narayanan. While the discount offered by the apparel and luggage chain is  between 25 and 30%, in kids wear it’s 30%- 40%.

The consumer base is also widening. “From a largely middle class audience, I now see people  getting out of cars like Honda Accord and Mercedes Benz outside our stores,” says Gupta.

The rush to such outlets is also due to the fact that regular apparel retailers and multi-brand outlets  mostly offer off season sale only twice in a year. “But in times of inflation and continued price rise, the  consumer is looking to cut spends across categories on a daily basis,” says Venkatachalapathy.

Brand Factory too has seen a 5%-7 % increase in our sales over the past few months. “While we  cannot say that entirely due to inflation, we cannot rule out that it has played a role,” says Vishnu  Prasad, CEO of Brand Factory. 

WHILE the world debated and discussed the $570 billion fiscal stimulus package announced by the Chinese government, few noticed a unique and innovative policy decision from the government across the straits in Taiwan. The Chinese had drawn up a massive bill, largely funded by tax payers’, to be spent by the government itself in boosting the economic activity. Taiwan, on the other hand, decided to give back some money to its citizens to spend by themselves, thereby creating demand for products in local markets, which in turn could boost economic activity and job creation.

Under a new policy announced in December 2008, the island’s 23 million people regardless of age or wealth were given 3,600 Taiwan dollars or around $165 as shopping vouchers. “The programme is aimed at boosting the economy and is expected to contribute to a 0.64% increase in 2009 GDP,” explained Premier Liu Chao-shiuan. The core belief behind this programme was government spending is not effective due to leakages and delay in execution, whereas private spending is far more efficient in boosting economic activity, creating demand for goods and services and raising employment levels. The idea of the voucher and stimulating growth through private consumption has been powerful enough for even the governments of Japan and Germany to consider such a move.

In India, private consumption demand has been the key driver of economic growth, with private final consumption expenditure contributing over half of India’s growth in the past decade. In fact, almost 68% of India’s GDP is accounted by private consumption, as against 39% in China, making the case for stimulating the Indian economy by growing private consumption far stronger than anywhere else in the world.

Yet, most policy prescriptions in India have focused more on government spending and some tax rebates to selective industries. Rather than depending on policy prescriptions that have been tried before, it is time, we start exploring innovative measures that can positively affect the economic scenario in India. With a young demographic profile and growing urbanization, increase in private consumption can have a much longer and sustainable impact in creating demand and jobs across the country.

Given the right policy prescriptions, modern retail could also play a major role in stimulating private demand in India. Contrary to popular sentiments, this year has truly been an inflection point for modern retail in India. One of the biggest stumbling blocks for retail to develop in India was the rising cost structures, led by the rise in real estate prices. For the first time in many years, we are witnessing a scenario wherein real estate costs are falling and the retail business is becoming more and more viable. Along with it, people costs and operational costs are also stabilizing. There are distinct signs of consolidation about to take place in retailing in India.

As the share of modern retail grows, so will its impact on the domestic economy. By 2012, modern retail will directly employ over 1.6 million people at shop floors. Almost all of them will come from lower income groups and lesser educational backgrounds and who might not have found employment in other sunrise sectors in India. In addition, retail will create millions of more jobs in support services like security, mall and facilities management, construction and supply chains. Reports by consultancy major, McKinsey & Co, point out that for the government level, modern retail will help improve indirect tax collection by 1%, add to GDP growth and play a role in controlling inflation.

Cities in India have few public spaces for people to converge. With the growth of modern retailing, shopping malls and high streets have emerged as modern India’s public spaces where the middle class comes and spends time with their family.

Yet, the role and contribution of modern retail in India is yet to be acknowledged. Even when sectors as diverse as IT, hospitality, multiplexes and real estate enjoy various fiscal incentives from the government, modern retail is largely ignored by policy makers. In fact modern retail is viewed as a luxury, and imposed with more taxes, discriminatory power rates and stiff regulations.

As we step into a new year, we are also entering a new era of business and economic environment. A new era calls for fresh thinking, exploring new scenarios and new solutions. Whether it is through deficit-financed tax cuts that will put more money in the pocket of consumers, or through vouchers that encourage people to spend immediately, we have to explore ways and means to further boost private consumption. And as modern retailers acquire size and scale, we have to work on government advocacy that ensures modern retail plays a far more decisive role in the country’s economic growth and development.