Tuesday, August 15, 2006

In HyperCity, India Gets Big Box Retail


For better or worse, big box retail has arrived in India. Yet another sign of the dramatic changes India is undergoing.

Back in April, K. Raheja Corp. Group, a real estate and retailing giant in India, opened a 120,000 square foot HyperCity retail store in Malad, a Mumbai suburb already known for another K. Raheja Corp. project, the Inorbit Mall. The company plans to open somewhere between 35 and 50 more HyperCities throughout India's tier-I (e.g., Delhi, Bangalore, Chennai) and tier-II (e.g., Mangalore, Aurangabad, Lucknow) cities in the next ten years.

How much does this emerging market for big-box retail in India really represent a changing India? After all, only a very small percentage of India's population can afford to shop at a place like HyperCity. Nearly half of Mumbai's population, almost 6 million people, live in slums like
Dharavi--ignominiously known as Asia's largest slum--and aren't likely to make it to the suburb of Malad, a good hour away by car or train. But poverty is meaningless when people embrace consumer debt. HyperCity seems to be anticipating a growth in the acceptance of consumer debt more than any sort of real economic prosperity among the country's poor. This may sound cynical, but when you learn that HyperCity has partnered with Hong Kong bank and Citi Financial to make sure rupee-less consumers can still make a purchase, it sounds more like the reality:

"It's our way of telling shoppers--if you don't have money to pay for something now, don't fret," according to HyperCity's South African CEO, Andrew Levermore, in an interview on
rediff.com.

Until very recently, this sort of consumer debt was unheard of in India. Levermore also has his eye on other ways in which the Indian consumer is changing:

"We have a phrase here: 'It won't work in India - IWWII,' " Levermore recently explained in an article in The Guardian

"I was told Indian housewives want to handle their vegetables. They don't. They like it just like everywhere else: clean, wrapped in cellophane and free from everyone else's grubby fingers."

Let's return to the question: How much does a place like HyperCity really change a country of more than a billion people, especially when 97% of all retail spending in the country--a total of $258 billion--happens in traditional family-run shops taking up, on average, about 500 square feet of space? (statistics are from The Guardian article cited above).


If HyperCity proves to be anything like Wal-Mart, it has the potential to lead to vast change.

A small aside...
Admittedly, there is ongoing debate about the precise impacts Wal-Mart has on small businesses, rural communities, global supply chains, and workers and working conditions. But even if, on balance, there is a net "good," the fact that there is such opposition to Wal-Mart in the U.S., as evidenced not least of which by the many small towns fighting legal battles to keep Wal-Mart out of their communities, says something about perceived impacts.

Back on point...
If even a small fraction of the people working in India's current mom-and-pop retail sector wind up out of business, The 340 or so jobs created by each HyperCity will hardly balance the losses.

Of greater concern may be the way HyperCity is following the American big box model of suburban development. This is where land is cheapest, so obviously HyperCities, which are land-intensive enterprises, will be located in suburban areas. But unlike some of the uncertainties surrounding social impacts of Wal-Marts, the environmental impacts of Wal-Mart-style development are fairly well documented (for a conservative government view, see NASA's website on the use of satellite images to understand sprawl's environmental impacts; or Sierra Club's website for a good article on the link between big box sprawl and climate changing CO2 emissions).

But maybe the HyperCities of India, and other retailing magnates hoping to follow in HyperCitiy's footsteps, understand the social and environmental impacts their operations will have. This is what K. Raheja Corp. says about its commitment to social responsibility:

...increasing urbanisation leading to spiralling prices of real estate and higher pollution levels have necessitated the need to provide more green cover. At K. Raheja Corp, we identified this need and developed parks, children's play areas, beautiful traffic islands and similar facilities to do our bit towards creating a more equitable environment.

American companies who have made promises of social or environmental responsibility haven't always delivered on their promises (though what Wal-Mart does with its new image makeover, which includes a commitment to a sweeping environmental initiative, will be interesting). In the case of the K. Raheja Corp., I'm not sure that adding a little green cover is going to balance the impacts its development projects have. But I'd like to move away from the environmental impact argument anyway. It's too easy for critics to dismiss arguments coming from the west that the global south should reduce its environmental impacts to help save the world from the consequences of climate change.

Instead, let me conclude by suggesting that India should move ahead not just with HyperCities throughout India, but also with the opening up of foreign direct investment for retailers like Wal-Mart, Target, Home Depot, and Best Buy. I say this partly tongue-in-cheek. But in all seriousness, this seems to be the inevitable end toward which India is headed. Furthermore, real competition might mean that the company with the retail model that is most consistent with current Indian preferences and values will win out. Carrefour and Wal-Mart both learned following their failures in South Korea that a successful retail model in one part of the world doesn't always translate to another part.

Regardless of how the big box retail revolution in India proceeds, I would hope that Indians are able, in a way that Americans could only do after the fact, to anticipate and respond to the changes big box retail will bring: from the weakened social networks resulting from the vanquishing of local retailing and the increased time spent in automobiles to reach the new mega retailing outlets, to the increased individualism and diminished communitarianism resulting from the heightened focus on self-image and the pursuit of happiness through material goods that comes with the type of consumer capitalism epitomized by big box retail.

If, in fact, big box retailing proceeds in India in a way that is sensitive to local customs and values (here's where I become highly skeptical of my own hopes), then perhaps Levermore, the HyperCity CEO, will be right when he claims that "HyperCITY exemplifies all that India should be proud of," (from an article in The Telegraph.)

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3 comments:

Ritesh said...

very informative

Darel Luiz said...

The Hyper City format of big box retailing is quite a formidable format in retail development in India. My concerns are to the extent for classifying the Big Box Retailing. This is mainly - Category Killer and General merchandising. The large amount of Large plate format retailing have assumingly taken a big box nature with a 80,000 plus sq. ft on a vertically integrated facility. Example - Hometown , Big bazzar, Max Hypermarket etc.
With higher rental values in terms of real estate and a lacking ionfrstaructure to back the big box format would be the major concern from a business point of view. However the economic reforms are large and the repercussion seems to inevitable.

Fractional communities mainly Mom and pop stores , small retail outlets all seemingly faces a wipe out. The question herein lies at the how a balance could be forced out.

Darel Luiz

jyothi said...

Good blog