Monday, 6 May 2013

Post FDI: Impact on Manning Modern Retail

With the recent announcement of the government of India to allow FDI in Retail, there would be a burst of investment in the sector, thereby igniting a humungous growth in the sector. The first impact of this growth will be visible in the need of the Retail Talent, which is also under-supplied as of now. Over the last few years, the world of work has changed dramatically due to globalization, with organizations being assessed against international standards and best practices Retail has never been a first choice of sector to most qualified MBA’s; it is mostly on the bottom of the priority list for them. Youngsters join the retail industry at lower salaries, get some experience and then move on to better jobs or back to education. The work pattern of retail industry requires employees to put in long hours of work which generally cause fatigue and lower motivation among employees But with FDI now allowed the pressure on the Talent pool of this sector will be on raise.

A recent comment by Planning commission, Deputy Chairman Mr. Montek Singh Ahluwalia is something noteworthy. He said, “Modern retail produces better quality of jobs.” He was talking about the alleged criticism that modern retail after government’s decision to increase foreign direct investment would render many people jobless.

Now what does this mean to the retail sector? It is going to benefit both Indian retail and foreign companies like Wal-Mart, Carrefour, Tesco and many such companies who want to enter the Indian retail sector or expand their foothold in the country. India with its 110+ billion population is too huge a market for any foreign company to ignore. In fact many retail players from various countries have initiated their entry plans in Indian markets with a prior focus on manning their stores with the right talent for their brands.

Our estimates show that Indian retail sector stands at a $450 billion in size, which gives it the coveted position of being among top five retail markets in the world. But unfortunately organized retail sector constitutes a meager 4 per cent of the entire market. The good news however is that it is expected be 9% of the total retail market by 2015 and 20% by 2020.

Despite the retail sector being around for over 2 decades, a local Baniya store still calls the shots in the retail sector simply because of their numbers. So it makes me wonder about all the concerns that increase in FDI in retail sector would render many people jobless and would lead to shutting of many Kirana stores. Indian retail sector is the second biggest employer in India after Agriculture.

With the increase in FDI and the subsequent increase in the flow of funds, all the retail companies will get into an expansion mode. This would require them to increase their manpower tremendously. We are not able to find suitable candidates for existing positions in the sector at ease. What is going to happen when companies expand? Who is going to man our stores? Where is the manpower going to come from? Are we really equipped with retail talent to man our stores post FDI?

It is anybody’s guess. People are going to poach from competitors. This will lead to madness because companies will have to increase the pay of the new joinees to make the offer attractive and to motivate the candidates to join them. This seems to be the only option left. We saw that happen in 2006 when new companies such as Aditya Birla, Reliance Retail, ITC, etc. entered the retail sector, the salaries rose around 200-400 per cent. This is because experienced people in this nascent sector are very less. Companies starting their operations on a massive scale needed experienced & expert retail professionals; to man their mammoth growth plans. So picking up available talent from the existing available pool at higher than market price was easier than creating talent, by investing in training & exposure. The same scene might be repeated since the expected expansions would be really huge and the experienced manpower count is comparatively scarce.

In the last decade, the cost of employment has already reached to about 6% from an earlier 3.5% of the turnover, which the razor thin margin retail sector, is already grappling with. Also adding to the problem is the fact that we have many e-tailing companies opening shops almost every other day. India has the 3rd largest number of Facebook subscribers in the world with 53 million subscribers in August 2012 and provides a very easy and targeted audience for these websites. Industry estimates show that the e-commerce market in India for 2012 is estimated to around $10 billion and expected to grow at the rate 45% to reach $200 billion by 2020.

Now these companies too have become attractive for investors and they come with heavy investor backing. They are also going to need merchandisers and category managers and many senior people with retail knowledge. The manpower requirements of these companies are almost similar to a retail company’s requirements except for the frontline sale people since they sell online. But few of these ecommerce companies are opening up their stores as well. Other than these e-tailing companies, every retail chain is also having an ecommerce site of their own to sell their products. So they are going to need more people to man them. With such a restricted talent pool its mind boggling to even think that we will be able supply all the required talent for future expansion plans of retail companies.

While increase in pay scale is a welcome change for an employee, it would become a huge challenge for the retailers to sustain their business, as the cost of employment will increase drastically. It is important for employees also to understand the larger issues in sudden raise in pay scale. It would increase the spending power by employees thereby adding to the inflationary pressures on the economy. So, while on one hand the employees may get a lot more, as salary, when compared to times before, but they will be spending much more than they did earlier because of inflation. So a controlled and gradual rise in income is the only solution to resolve this issue. Retaining the retail talent will become a big task for all existing players, who will have to entice the talent to stay back.

So are we going to let market forces take its own course and shoot up the salaries to an extent that the companies HR expenses become unmanageable? Is there anything else we could do to avoid the rush and poaching exercises?

There are many solutions to these problems:

Importance of training: It is a known fact that, there is no specialized finishing school for retail sector. A recent government estimate shows that India has 567 universities attached to it and industry estimates suggest that India produces around 3-5 million graduates every year. A vast majority of them are unemployable because they lack communication skills. Communication or soft skills are very important skill in the retail sector. If the retail sector had a finishing school we could get these candidates to be trained in these schools and they become employable. Also, the retail companies should constantly invest time and energy on training its employees, so that they could take them to a next level in the company. We are in a knowledge economy; no amount of training will ever go waste.

Training has a few tangible benefits and many more intangible benefits. I have always believed in an observation made by Malcolm Gladwell in one of his bestseller “Outliers”. He said, ““Those three things - autonomy, complexity, and a connection between effort and reward - are, most people will agree, the three qualities that work has to have if it is to be satisfying.” So, Salary, is just one part of the many things that an employee looks for. He needs autonomy and complexity in work. By autonomy it simply means some sort of freedom to the work assigned to him and by complexity it means that an employee has to find it challenging and feeling that he has learnt something new.

So it is important for companies to understand that money is not the only reason why people quit and seek better shores. The companies need to understand an employee’s satisfaction levels and invest in him accordingly. When he feels he is involved in the company intellectually, many of them may not quit even if they were to get better pay. That is the kind of impact high-level training could have on an employee.

To create a balance of high cost of experienced manpower & the low cost of new entrants, retailer will have to invest hugely in training the prospective retail professionals.

Campus selection:
Indian campuses are bountiful. The quantity of students who pass out of campuses every year can be a huge market to pick up for a retail company. While it is true that many of the students in good B - schools always look for the blue chip company offers, we as an industry have to make an impact on this thought process so that students start looking forward to working in retail sector. For that we have to make retail sector attractive enough for them. Retail sector for many students is not a first choice because of three important reasons: mandatory to work during weekends and public holidays, career growth not very evident and finally lack of information or awareness about the sector. Career growth is not very evident because the sector as a whole has not created awareness for the people outside the sector. To get over these problems we have to get out of our old-fashioned thinking and create a professional working environment for all.

Other sectors:
When companies approach us for mid level and senior level employees, many of them ask for candidates with prior experience in retail. For few positions, I have a tough time in convincing them to consider employees in other sector who come up with system knowledge. Yes, it may take them sometime to understand retail sector, because they have no prior experience, but in the long run, you have created a new employee for the sector. That will do well, not just for the company, but also for the sector as a whole. These companies can try imparting new practices, procedures and systems that are successful in other industries through these resources. Also, when you bring in an employee from other established sector, he comes in with some prior knowledge of the sector, hence he could bring in best practices from there that could be adapted in retail sector as well. In my opinion, retail sector should be more open in choosing candidates for their manpower need.

With all the news and fanfare on FDI, what is in store for an employee in the sector?
-          The most obvious benefit is new jobs being created.
-          Secondly, the possibility of a higher pay package that may come with the new job
-          Thirdly an employee may get a quicker recognition, promotion and more responsibilities in terms of work
-          When there are more foreign companies in the domestic market, they come with a lot of established practices. So Indian retail companies who partner with them and also the employees who work for them will get to learn those practices and methods which ease the process of manning these stores. Sam Walton, the founder of Wal-Mart stores in the United States of America summarized the idea of good practices in his observation. He said, “If you get one good idea, that’s one more than you went into the store with, and we must try to incorporate it into our company.”

So its time that retail sector as a whole started thinking out of box. As FDI opens up our minds, pockets and hearts in the sector, teaching us those best practices from our foreign counterparts, when we do our own thinking out-of-the-box, there may be something that India could offer to the global processes in retailing.

Only the future can tell us of whether the FDI is going to be a boon or a bane, as the fight for retail talent will begin now. Lets hope that, we as the custodians of this sector, will take all relevant steps to ensure a sustainable growth to the retail sector. Remember, 6% of your topline is the cost of employment, as against 3.5% earlier.

NOTE: This article was published in Images Retail Magazine, October 2012 issue.

About the author:
Barkat Charania, is the “Chief Executive Officer” of a specialty Retail Executive Search Firm “Beyond Talent”, founded by Retail industry stalwart, Mr. Susil S. Dungarwal.  Barkat has over a decade’s experience in placements & Head hunting, and has been an avid follower of the Retail sector. Beyond Talent Management Pvt. Ltd. currently, works with many leading retailers, for fulfilling the talent crunch across various verticals of Retail on a pan India basis.

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