Since 2006, when most big retailers either entered the retail space or began expanding their network, sales in local kiranas have grown in the low single digits even less than the GDP growth rate, while modern trade has grown in strong double digits, though at a much lower base.

For instance, sales at modern stores grew 34% in 2006 and 29.3% in 2010. Traditional stores could increase sales only 1.5% in 2006, but improved the growth rate to 6.2% last year (see graph).

The data comes at a time the government finally moves closer to allowing multinational retailers such as Wal-Mart and Carrefour open shops in the country after several years of debates, protests and lobbying. Critics, including the Left and the BJP, say such a move will impact the livelihood of small shopkeepers and traders, but the thinking in government circles is that this will help check rising food prices by removing several layers of middlemen between farmers and consumers.

Organised retail accounts for less than 10% of India’s retail market estimated at close to $400 million. The Boston Consulting Group estimates the size of organised retail market at $28 billion and expects it to grow nine times to $260 billion in 10 years.

Nielsen says Indians have embraced modern retail.  “The Indian Shopper has discovered modern retail and is increasingly shopping there,” says Nielsen’s Executive Director for Retail and Shopper Practice Dipita Chakraborty. This trend is fueled by the growth in number of modern stores, she adds.
The study shows that the frequency of consumers going to large stores has increased. More than 37% consumers visited modern trade stores every month this year, up from 30% last year.

Reliance Retail President Bijou Kurien attributes this to more options that big retailers offer to consumers. “In momand-pop stores, customer has to be very specific with what they want, but they can get more options in a modern store, and that’s where we are gaining,” he says.

MOVING TOWARDS FDI
The Indian government has been advocating that FDI in retail could help small farmers and other producers as well as generate employment for some time now.

In fact, an inter-ministerial group set up by Prime Minister Manmohan Singh to suggest ways to tackle high inflation has said that organised retail will reduce the margin between the price farmers get and what consumers pay by eliminating traders, and this will bring down prices. The group also tried to allay fears of small shopkeepers by suggesting creation of several zones and restricting the number of large-format retail stores in each zone.

Multinationals like Wal-Mart and Carrefour, which are lobbying for entry into the big and fast-growing Indian retail market, also say big investments in cold storages will cut wastage of fruits and vegetable in the country, estimated at . 130 crore every day, or about half the total production.

And big retailers say they are no threat to small grocers.  “Both the formats can co-exist. In fact, when modern trade help create new categories, the spillover effect is helping generate more demand in kirana stores as well,” says Damodar Mall, director, integrated food strategy, Future Group, the country’s largest retailer. “Once more wholesale or cash and carry stores are opened, smaller stores too will have more bargaining power and source products at lower costs,” added Mall.

However small shopkeepers are not convinced. And they are holding their ground, more or less.  “It’s true that our business is down compared to what we did few years ago. But we are also observing that few consumers are coming back to our stores for want of better credit facility or home delivery which large format stores can’t offer,” says Chandrakant Gala, secretary, Bombay Suburban Grain Dealers Association.

Meanwhile, big consumer product companies, including the country’s largest consumer products firm Hindustan Unilever that has relied on millions of small shops to build its empire, are now aggressively tapping modern stores.
Modern retail now accounts for 10% of Hindustan Unilever’s sales, up from 5% in 2005. “Last year, 85% of our business has grown share in modern trade. In modern trade we want to be significantly overweight,” the company’s executive director for sales & customer development Hemand Bakshi had told ET in April.
One reason for this is premium products are sold more in modern retail. And the Indian consumers’ love for premium products, which offer higher margins to manufacturers, is increasing along with their rising incomes, exposure and aspirations.

So when she needed a new cellphone, she bypassed the 55,000-square-foot store with its many departments — appliances, big-screen TVs, computers, cameras, car audio, video and music. Instead, she stopped across the street at the Best Buy Mobile store.

The slimmed-down 850-square-foot sister store concentrates only on mobile devices.

“I ask about a thousand questions, and this is more personalized, more one-on-one attention,” said Yang of Blue Springs, Mo.

Yang bought a white Droid Razr, and her brother John Yang picked up a black one.

Bigger is not always better. Just ask the biggest retailers in the country — and their customers.

The recession and the growth of online shopping have conspired to cut chains down to size. One strategy they’ve employed has been to close underperforming stores. But Best Buy and an increasing number of companies are trying another strategy too — going smaller.

Among the retailers testing smaller concepts are Blockbuster, Ann Taylor, Gap, Kohl’s, Lowe’s and Sports Authority. RadioShack even is trying a “store-within-a-store” format in several OfficeMax stores in California.

Lower square footage makes for lower construction and remodeling costs, and that also tends to make them easier to finance. The smaller locations have less overhead costs and can be manned by fewer employees.

The small size also gives the chains more flexibility in locations, allowing them to squeeze into heavily developed urban centers, and compact spaces in airports, college campuses and strip centers. If the location isn’t successful, the chains can close the sites with less financial fallout.

“For a decade it was ‘build it and they will come,’ ” said Candace Corlett, president of WSL Strategic Retail in New York.

“It’s definitely a correction for retailers as well as restaurants, a direct result of consumers not having as much to spend on the extras. The strategy has to be to reduce your costs to offset less traffic. Usually that means less rent, shrinking retail and restaurants,” Corlett said.

Jeff Green, president of Jeff Green Partners, Phoenix-based real-estate consultants, has long criticized the “bigger is better” movement.

“They think the bigger they are the more exciting they are and that’s not necessarily the case, as Apple has proven,” Green said.

“Consumers like the smaller stores, like to be part of a ‘happening,’ and smaller stores have that feel.”

When retailers like Ann Taylor, Chico’s and the Gap opened larger stores, they didn’t necessarily see an equivalent rise in sales, if any rise at all, that would justify the added expense, Green said.

“Any retailer that is opening larger and larger stores, I question their long-term viability,” Green said. “Costco and Sam’s Club defy that theory. That’s because consumers really perceive them as great values and value trumps the inconvenience of size.”

One of the latest retailers to embrace small stores is Cabela’s. On Feb. 16, the outdoor-equipment and sporting-goods retailer said it would open its first Cabela’s Outpost Store this fall in Union Gap, just south of Yakima; up to three more are planned for next year.

The Outpost stores will be significantly smaller than traditional Cabela’s: about 40,000 square feet compared with, say, the 185,000-square-foot Cabela’s in Lacey, Thurston County.

Cabela’s also has plans to open an 110,000-square-foot store this year at Quil Ceda Village on the Tulalip Tribes Indian reservation. And it will target smaller markets — 250,000 people or less with a high concentration of them already Cabela’s customers.

Best Buy introduced its mobile locations in 2007 and there are about 260 nationwide, including the Independence Best Buy Mobile store, which opened in August. Best Buy has about 1,100 full-size stores.

“The customer wants a different shopping experience. We don’t work on commission, and we carry everybody,” said Kyle Cochran, manager of the Independence store, which is tucked between two specialty stores on the lower level of the Independence Center mall.

Still, consumers who have come to know a brand as a “category killer” might be confused by the new concept.

The Wal-Mart Neighborhood Stores are designed to provide shoppers with a quick, convenient stop for fresh produce, dairy items, and pharmacy products at low prices. The grocery stores are about 29,000 square feet compared with a 142,000-square-foot supercenter.

But some grocery store shoppers still expect to see the large selections of products Wal-Mart is known for.

Carolyn Shaw of Shawnee, Kan., was disappointed in the holiday selection at a Wal-Mart Neighborhood store earlier this month during a morning stop in a snowstorm.

“They didn’t have many Valentine’s items,” Shaw said. “Now I’ll have to go back out this afternoon to a bigger Wal-Mart.”