The Indian Economy Blog

December 30, 2007

India’s Retail Revolution: Question 2

Filed under: Business,Retail — Prashant @ 5:12 am

How much lower are prices because of the new retailers?

Are clothes and shoes at the malls and new retail stores in India much more expensive than in the United States? It seems that way, to me at least. For instance, during my last visit to Chennai, I bought a pair of Reebok sneakers having left my original pair back home in the US. This darn pair cost me Rs $125 (Rs 5,000) at the Reebok store in India, whereas the exact same pair cost me just $80 in the US. Around this time, a relative gifted me a shirt from ColorPlus. This shirt cost Rs $63 (Rs 2,500) versus $40 (if that) for an identical shirt in the US. I’ve experienced this “sticker shock” every time I’ve visited a store in India over the last two years.

Questions
1) What is your experience of prices in India vis-a-vis other countries, especially South East Asia and East Asia?

2) If prices are high in India, what’s the reason:

a) Brand licensing fees: This might hold for Reebok or Levi’s but certainly not for ColorPlus or Indian brands.

b) Real estate prices/ high rents: Perhaps. However, my guess is that while real estate prices in India have shot up recently, on average, retail space in the US is still more expensive than India. Besides, if rental costs were such a big component of costs, wouldn’t this create a huge opportunity for catalog/ online retailers?

c) Import duties/ tariffs: Hmm? I thought these clothes & shoes were made in India. I’ve bought shirts, trousers and suits in the US that were made in India, which cost me 50% to 70% of what they’d cost me in India.

d) Something else?

Caveats:
1) The only malls/ stores I’ve visited in India have been in Mumbai (Crossroads/ Vama/ some shops in Colaba & Fountain) and Chennai (City Centre/ Spencers/ Westside and a few others). In other words, my knowledge is limited and completely based on sporadic anecdotal evidence.

2) I don’t know much about prices for groceries – vegetables, fruits, grains — which is Reliance’s (initial) target, I think.

45 Comments »

  1. Reebok may be targeting the luxury portion of the market. This is usually a good place to start if you enter a unkown market, but understand that your product is generally of better quality than local competitors. You can easily lower your prices and your brand image, its much harder to go the other way around.

    Another factor that plays a role is that most MNC’s understand that a strategy that involves selling to the masses in India would require two things: large capital investments & small margins. As you mentioned their is a way around the large capital investments in some situations, but the margins may not be appealing enough for these companies to risk the exclusivity that their products currently command.

    American auto companies such as Ford, a company with a market cap of ~20B along with debt of approximately ~150B, is considered a luxury brand in many European countries.

    However, we are beginning to see instances where companies realize the potential returns of a high volume strategy in India with examples such as unilever, the entire telecomm market, and Tata’s 1lakh car.

    Comment by patel — December 30, 2007 @ 10:50 am

  2. I suspect they are targetting “aspirational customers”. If they make their products affordable, they risk losing those that visit the Reebok store only because it makes them feel rich – and yet not attract enough customers at the lower end, who continue to buy much cheaper local brands anyway.

    Indian customers are very class-conscious. If they walk into a place and see customers who are not “classy enough”, they get turned off and go to a more expensive place. And yes, they will pay +20% for the “privilege”.

    The psychology surrounding shopping in India is more akin to restaurant visits in the developed world, where the “crowd” and the “feel” of the place is at least as important as the product.

    Comment by snoopy — December 30, 2007 @ 1:10 pm

  3. May I add that the premium positioning extends to groceries and veggies as well. Washington apples cost more in India than here in ‘expensive’ Scandinavia. Same for packaged food items like juices – fruit juice by Godrej in India is almost three times as expensive in comparison to a similar brand here. In addition, the concept of ‘private labels’ is still in its infancy in India.

    Comment by Najil Mohammed — December 30, 2007 @ 2:31 pm

  4. Seems to be a very basic question. I would expect a IEB blogger to already know the exact reasons behind a pair of reebok costing $125 in India or average hotel rents in metros north of $300…

    while the list of comments gets longer with more and more theoretical/technical terminology added, it would be prudent to talk to few shopkeepers in any indian market. chances are none of them would have studied economics but they should be able to give you a lot better answer :)

    some of my guesses would be – 1) sales volumes being lot higher in US, $ figures per sq.ft of shelf space would be lot higher. hence you see “true” bargains in US. like reeboks for $39.99 2) black money in india which can only be spent or kept in a mattress. walk in to a jewelry showroom and you can see fat women gobble up gold and diamonds in exchange of bundles of cash 3) black money again. from retailer’s side in buying a store in a mall. often cost of real estate is not counted in costs. btw – most franchises in india expect you to own a store and rentals are not figured in costs. else most of business models are not functional. 4) factor in bribes, power backups, import duties, excise, luxury tax, etc etc and your reebok starts to cost Rs.5000!

    Comment by ashutosh — December 30, 2007 @ 7:39 pm

  5. “A product’s price is exactly what the buyer is willing to pay” — I read this somewhere but I’m surely convinced that *this* and this equation only determines the price.

    Obviously, Competition in U.S. market is high compared to an Indian market in case of Reebok, Nike and other labels. So, they need to go for lower prices. While in India, it’s the opposite. The higher prices they have – the more aspirational they become. I’m not saying that Adidas, etc. are cheap brands in U.S. It’s just that they are going for a different imagery in both the markets.

    Regarding the fixed costs of bribe, high land-prices, etc. A counter point can be that labour costs(this includes shopkeers as well as Managers and Brand managers) in India are much much cheaper compared to U.S. Even the Advertising expenses are quite less when compared to European and American markets(dollar-rupee parity). Anyways, I don’t think that these American brands are selling their products at break-even values.. they should easily be making margins of over 60% in India. So, trying to bring in bribery costs into this discussion isn’t really adding much to the points.

    Comment by Himanshu — December 30, 2007 @ 8:11 pm

  6. Another question I have is why is supposedly subsidized fuel in India costlier than in the USA – where I don’t think it’s subsidized not directly at least :)

    Comment by Sridhar — December 30, 2007 @ 10:16 pm

  7. At least in the case of Reebok/Nike et al, most of the products you buy in India are the same as the products you buy in the US, being made in China/Vietnam and the like. So maybe duties play a role as well.

    Comment by Udhay — December 30, 2007 @ 10:26 pm

  8. i have noticed two distinct trends based on my limited experience.

    1. the ‘up market’ or luxury brands which tend to price their goods at a premium as compared to shops outside india, even in the rest of asia (visit sri lanka or thailand if you want good deals on branded stuff). much of the premium is explained by the duties and the margins required to cover the higher costs here, including intermediation.

    2. the lower end mass market brands tend to be priced either at the same level or even lower than what you see in international markets. colas and burgers are good examples of lower pricing. i would imagine that the size of the local market tends to drive these pricing decisions for these players.

    p.s. your relative seems to have bought you a high-end color-plus shirt. most of their shirts start at about Rs.1,000 upward. (we sometimes tend to buy more expensive gifts for select people than what we would have spent on ourselves!)

    p.p.s. i too used to wonder about subsidised fuel being higher-priced than in most neighboring countries who do not even produce as much fuel as we do!

    Comment by guruprasad — December 30, 2007 @ 11:02 pm

  9. What do you mean by an identical shirt? I know nothing about Colorplus. It seems to be an India-only brand. But from experience I can say that the high-end shirts that I bought in India many years ago are of better quality than the $40 shirts ($40 being the sale price). Some of those Indian shirts compare to the $80 to $100 shirts here (the price before any discount). The price you see on that gift is the Indian price without discount. If you take quality into consideration clothes are cheaper in India.

    Comparison with the US is not always straightforward. Consumer culture is very different here. People are free-spending and ready to discard their wardrobe (and many other items) before the next season. Most of the time fashion is more important that quality of the material. A lot of items do not last more than a year (especially true about those $40 shirts though I have some good quality $60 shirts).

    Of course, the retail sector is mature in the US. It is much more efficient than in India and thus can pass on the savings to the consumer. No question about that.

    Comment by HmmBut — December 31, 2007 @ 10:37 am

  10. Most of these can be explained by additional tax/cess/excise/duty/tariffs etc.

    Should the government attempt to bring the prices down? Why? If you can afford a pair of shoes that costs US $80 then perhaps you can very well afford US $125!

    If the prices were brought down then it would be a win-win situation for everyone – retailers, consumers and the government. But the same can be said about a hundred other things that the government is lax about – infrastructure, education, public health, security, sports etc.

    So, apathy towards inefficiencies is the main cause of the higher prices.

    I have always maintained that India is not a poor country; it is just mismanaged.

    The prices cannot be reduced just by reducing the tax barriers. You will not be able to create consumers out of poor people just by reducing the tax. We will need volume for that.

    Ever wondered how many Nike, Reebok and Adidas were bought in 2007 in India?

    Comment by Randhir Sinha — December 31, 2007 @ 2:48 pm

  11. I am surprised that all the reasons mentioned here are actually trying to rationalize the high price. The fact is that retailers are skimming the indian market as of now and making super-normal profits. Take the P&L of any retailer in US and you will realize that their margins are in the range of 5% for the goods you mentioned. Move to grocery retail and you will see margins becoming sub 1%. The fact of the matter is that there is a huge demand-supply mismatch. Shoppers Stop / Central and all have the same positoining in India that Nordstrom / Saks 5th Av have in US. Not to say that they carry the same brands etc. But only the top 5% of population of the country shops in these places. And the demand in that segment is highly inelastic for certain variations in price. How else can you explain a Color Plus shirt going from 1200 to 2500 in 3 years. This problem will get solved when we have more players in the organized retail sector. Let Reliance / Bharti (Walmart) enter these segments and you will see the price drop by more than 50%.
    And just for comparison, even store brands in Shoppers Stop are more expensive than regular brands in US. However, the store brands of Big Bazaar are very competitive!!!
    Its great to see someone write about this. I thought that I was the only one who has a problem with this.
    I hope this problem gets solved as we have bigger and more efficient players entering this market!!

    Comment by Shreyash — December 31, 2007 @ 10:25 pm

  12. Here is my take on this. I have lived in the US for 10+ years, and moved back to India to be closer to parents. I did the usual comparison thing after watching the meteoric rise of the $/Re rate. I now find that it is truly a wash as to where one lives with respect to cost of living. Most goods in India cost about the same as they do in the US, maybe because most of them are made in China and India anyway and imported into the US. I am talking about mundane things like Power strips, faucets, shower heads, notebooks, napkins, batteries, laundry detergent (Surf), shampoo, towels and other day-to-day items at Big Bazaar. Goods like TVs, refrigerators, ACs, etc are cheaper in the US than in India, maybe because of higher infrastructure costs in India compared to China. And of course cars and petrol are much cheaper in the US compared to India. I bought an office chair in India for 3200 Rupees, the same model costs 49.95 in the US. I asked the shopkeeper as to why it cost so much, and he said that was due to the following:

    a. landed cost of the chair (manufactured in China) is the same at $38.
    b. Add in port handling charges which are higher than in the US + service taxes at 12.35%
    c. Customs duty + excise duty + countervailing duty = 30%
    c. Warehousing charges by the trader who originally imported the chair along with other goods in the container and his profit margin (maybe around 20%).
    d. One more layer of middlemen who stock only chairs from which the showroom buys the chair. Add in their commission, profit margin.
    e. Showroom itself makes a 20% profit on the sale + VAT at 4%.

    You add up all the above and it is clear the price almost doubles by the time the consumer buys the chair. Also, since the selection of chairs is limited since volumes are low, you have to take the chair and be happy with it.

    If the US were to fix its health care system to remove inefficiencies, and reform its education system, it would lower the cost of living in the US, and be a cheaper and more attractive place to live compared to India. For those people who dream of socking away dollars to come retire in India, particularly in a metro, I have to say they are going to be disappointed. If the Rupee were to appreciate to 30/$, I will be forced to move back to the US.

    Comment by Observer — January 2, 2008 @ 11:26 am

  13. Thanks for bringing out the question that I had in mind from a long time. I have always wondered why prices of items like branded clothes/footwear/electronics are very high in India as compared to the US.

    I guess in India, the demand for luxury items is not very high as very few people can afford them, and those who can, probably don’t care paying more.

    But there are also people like me who won’t do any ‘unnecessary’ or ‘impulse buying’ in India, which I’d have otherwise done in the US, just because the prices seemed right. So even if I can afford something I’d not buy things, unless absolutely necessary. I am sure there are many people like me in India.

    So if the pricing were kept right, wouldn’t there be more demand?

    With so many new retail shops that have sprung up recently in our metros, I was hoping that there would be more rational pricing. That doesn’t seem to be happening for now. How long will these companies attract customers and survive like this?

    Comment by Max — January 2, 2008 @ 12:55 pm

  14. 2) I don’t know much about prices for groceries – vegetables, fruits, grains — which is Reliance’s (initial) target, I think.

    Regarding the above comment, I can say that groceries in metros are not really much cheaper than in the US. I buy groceries from kirana stores, so they are not inflated by the “mall effect”. Fruits like apples and oranges are almost as expensive in India as they are in a typical midwestern US store like Krogers. Potatoes, onions, spinach, milk are about half to a third the price in India when compared to the US. However, grains like rice and wheat are only somewhat cheaper than they are in the US.

    Comment by Observer — January 2, 2008 @ 1:14 pm

  15. I am a recent “return to india” person, and I noticed the same thing. We pay pretty much the same prices in India for a slightly inferior product when compared to what you get in the US retail shops. I wonder how people live here. I live in Bangalore, and I would like to add that in my experience local Kirana stores are no longer cheaper than a one-stop shop such as Big Bazaar for groceries such as produce at least.

    Electronics are more expensive than in the US, and so are branded goods. For example, I saw a Body Shop product that I have used for years and last paid about 17$ for, being sold at 900+ INR. I thought that was ridiculous and made a decision to not use Body Shop product and find a local replacement instead.

    Comment by R. — January 2, 2008 @ 2:04 pm

  16. I also had a similar experience in London recently.The the reason is :

    1.Luxury goods are seldom made in India and cost a bomb due to very high duties.

    2.Stuff like reebok shoes are “made in China” in the US which even counting shipping costs works out to be cheaper and this is specially true due to the rise of the rupee.

    3.Its holiday season in the west so prices are currently unbelievably low a white Van huesen shirt can be had for GBP 20 which is Rs 1600 while the same thing costs Rs 2399 in India.

    Comment by Shantanu Chatterjee — January 2, 2008 @ 4:41 pm

  17. I am a Chinese student now pursuing my Ph.D. degree in the U.S.
    I also find it strange that the price of sports shoes are less expensive in the U.S.than those in China, even though a great number of those shoes are manufactured in China.

    Comment by He Yang — January 2, 2008 @ 8:49 pm

  18. Observer, if the rupee rises imports will be cheaper or rather the rupee purchasing power will be higher. It could be a boon unless your income is in dollars or dollar-dependent. Then you are screwed.

    There is a good chance that the dollar would go down more. So keep you bags packed. You never know when you will have to fly out hehe! (just kidding about the bag-packing….)

    Comment by HmmBut — January 3, 2008 @ 4:14 am

  19. Observer, if the rupee rises imports will be cheaper or rather the rupee purchasing power will be higher. It could be a boon unless your income is in dollars or dollar-dependent. Then you are screwed.

    There is a good chance that the dollar would go down more. So keep you bags packed. You never know when you will have to fly out hehe! (just kidding about the bag-packing….)

    I work for a software company, so my income is dollar-dependent. Also, since the rupee has risen by 20% ofver the last 2 years, have prices of groceries, cars (excluding the excise cut), houses, petrol, college fees etc decreased by 20% also? Because of usurious taxes and poor management, the middle class to upper middle class Indian consumer pays a lot more for the same goods than their counterpart in the US. They do not vote anyway, so I do not expect any relief in the near term. Otherwise what could explain the 180% duty on used car imports levied by the Indian government? The domestic market is protected by high tariffs so the benefits of cheaper imports are not passed on to the Indian consumer. If the Rupee were to go up to 30/$, then a tin-can Maruti Alto would be more expensive than most used cars in the US. One can imagine the scenario if used cars were permitted to be imported at a nominal 15% duty. But then, anything that benefits the middle class Indian consumer would be considered “unpatriotic”.

    I am seriously thinking of relocating back to the US once the Rupee crosses 35/$, because I will not be able to afford my current lifestyle in India anymore on this Indian salary.

    Comment by Observer — January 3, 2008 @ 1:53 pm

  20. What do want India to do? Drown some more into debt like the US so that its people can maintain a lifestyle? This kind of thinking has brought a virtual disaster to the US. The only saving grace is that the dollar is the international trade currency. India doesn’t have that luxury. India is very much justified in applying those kinds of taxes. Even though India has a large govt debt, the good news is that most of it is domestic borrowing. Thus it is not at risk of becoming another Latin American deadbeat economy.

    We are too harsh on the managers of our economy. We always compare with the ones who did well. But we never notice that we didn’t go through the hardships that Latin American and African countries did. High tariffs and taxes are also hallmarks of the successful Asian Tigers. They are the ones to emulate not the failed policies of free-market fundamentalists.

    A lot of Indians here in the US are saying that they will go back to India if the dollar falls below the 35 mark. So its probably going to be two-way traffic. Anyway, a recession or at best a downturn is coming.

    Comment by HmmBut — January 4, 2008 @ 4:47 am

  21. [...] prices in the super markets and real estate. Hence discussions like this in the Indian Economy Blog http://indianeconomy.org/2007/12/30/indias-retail-revolution-question-2/. Or is it the other [...]

    Pingback by Wages and Prices - India Shining!! « Premanand’s Weblog — January 4, 2008 @ 4:52 am

  22. Another data point – devices such as blackberry pearl 8120 sell for about 525 odd USD in US, whereas the same device is retailed for 625 odd USD (25K INR @ 40 per USD). This is so very strange, and not at all friendly for the Indian consumer. Why such price disparity?

    Comment by R. — January 4, 2008 @ 3:21 pm

  23. A very interesting discussion going on here, I stumbled upon it by chance while searching for some information about Nike and its abuse of low-cost production countries such as Indonesia and China etc. Well I had a question which I have not yet been able to answer. Does a company need to pay import tarrifs to import its own goods produced in for example China and Indonesia? whilest their HQ is located in for example the US?

    I’ve read whats been discussed upon now, the import barriers in India for example, high level of protectionism. By the way, that post from “Observer” January the third 2008 1:53pm, your damn straight with that, India doesn’t have the economical resources yet in the meaning of own international companies to even out a fair open market trade balance. A lot of countries have already been destroyed by free trade. And if like India wouldn’t do what its doing now it would be a disaster. A downgoing spiral from which India might never recover.

    Well to get back to my question, if anyone could give me some information about it, regarding trade barriers and some taxes etc. I’d be very pleased and thankfull, so would my projectgroup. So far we researched that Nike has about a 70-75% profit (including the retailers cut). I think this is a possibility but there needs to be some taxes to cut that percentage down a little. For example whats the VAT in the US? (value added tax)

    Well thanks for reading this, and I wish you all a pleasent 2008

    Comment by Wes — January 4, 2008 @ 6:17 pm

  24. [...] tries to identify why retail prices in India’s malls are much higher than in the US, for the same product. I have noticed the same phenomenon. As some of the commenters point out, it might just be buyer [...]

    Pingback by Are malls overpriced? | DesiPundit — January 4, 2008 @ 7:36 pm

  25. This is a very bizarre comparison to make. The end prices that consumers see depends on a huge number of factors. While prices in India are higher than the US, they are lower than in Australia. Cellphones are the cheapest in India than in anywhere else in the world. Transport Costs, Taxes, Duties, size of market all sorts of stuff probably goes into the equation. I don’t find it surprising at all that we are paying these high prices here in India. Further, the US dollar used to be a strong currency. Strong currencies = easy imports. Not to mention there generally less barriers to trade in USA than India, it would logically follow that prices in India would be higher. Let’s factor in shortage of prime retail space (High rent, expensive supply chain maintenance, expensive infrastructure) this issue is a no-brainer.

    A better question to ask is: Is the price of goods inside Indian malls lower than the prices found in Kirana stores?

    What is the point of comparing these things internationally – that too with America?

    Comment by TTG — January 4, 2008 @ 8:33 pm

  26. The worst case is when you get a “made in india” item cheaper in the US than in India. I bought a “Faded Glory” brand “made in india” cotton shirt from Walmart for $12. Same shirt will cost me north of Rs.800/- in India.

    Comment by Abhilash Shastry — January 4, 2008 @ 10:25 pm

  27. Ok econ majors, back me up here or please explain so that my fundas are clear. Basically, its priced to a level that the market can absorb. If sales plummet, wouldn’t it be logical to conclude there will be discounts to get rid of inventory?
    Maybe there are very few Nike/Reebok/New Balance showrooms in these megamalls.

    Comment by Gigi — January 4, 2008 @ 11:22 pm

  28. I think there is a new layer of urban population – which can afford the “luxury” of these items. On question of why these are so expensive, that’s because people can afford to buy them at that prices.

    People may think Indian companies are not so clever, but they do better market research than anybody else, at least equivalent to the best research.

    Meanwhile, mind this sample of population is very less comparitively, inspite of the crowd you see – so the number of adidas shoes you can “buy”.

    Comment by Life — January 5, 2008 @ 10:13 am

  29. Why did you buy Reebok in India? Try Bata’s latest line of Sneakers

    Comment by Giri Guevara — January 6, 2008 @ 11:46 am

  30. I personally agree with Shreyash’s comment above that the retailers are deliberately overpricing everything, because people like to feel they’re buying something ‘premium’. To add my own experiences, I saw a nice pair of Tommy Hilfiger shoes at a mall in Bangalore, but they cost something like 3,250, so I didn’t buy them. A month later I was in Pune and saw the same set in a Shopper’s Stop, and they were 2,750. So the prices aren’t even the same across India – ‘premium’ places exaggerate the prices of their goods and people buy them without realizing.

    Comment by Sudarshan — January 7, 2008 @ 5:25 pm

  31. HmmBut says What do want India to do? Drown some more into debt like the US so that its people can maintain a lifestyle? This kind of thinking has brought a virtual disaster to the US. The only saving grace is that the dollar is the international trade currency. India doesn’t have that luxury. India is very much justified in applying those kinds of taxes.

    I do not follow the above logic. So it is ok to screw over the Indian consumer, who is on average much poorer than his US counterpart, by making him pay more for the same goods? Are Indian consumers not Indians? By these usurious taxes and high tariffs, the poor Indian consumer has to dig deeper into his or her disposable income. I am appalled that this basic point is lost on many people! When even basic goods like TVs, refrigerators, Air Conditioners, washing machines and others cost more in India than in the US, something is clearly wrong. Do we want to penalize Indians for buying these goods, and keep them away from modern conveniences? When “subsidized petrol” in India costs more than unsubsidized gasoline in the US, it is a blindingly obvious aberration. Who is thinking of the Indian consumer? Are the Indian government employees some kind of first-class citizens while the rest of Indians inferior in some way?

    India is poorer than many of the so-called “banana republics” quoted above. What is urgently needed is to introduce accountability in the system, reduce the usurious taxes, and reduce the role of government in most spheres of life in India. Let Indians enjoy what people in developed countries enjoy. To suggest otherwise reeks of elitism, and discrimination against the Indian consumer and citizen.

    Comment by Observer — January 7, 2008 @ 6:31 pm

  32. HmmBut says A lot of Indians here in the US are saying that they will go back to India if the dollar falls below the 35 mark. So its probably going to be two-way traffic. Anyway, a recession or at best a downturn is coming.

    I think those Indians are rather confused. First of all, outside the IT/Pharma/ITES/Management sectors, very few Indians make international level salaries. And these sectors are heavily dependent on exports. If the Rupee were to appreciate to 30/$ or higher, those jobs will probably shift to China, Indonesia, Vietnam, Mexico and other places, or not be offshored from the US/UK etc at all. One remembers the last time the Rupee was at 20/$. People were still desperately wanting to emigrate from India then. This was 1989. How come no one remembers those good old days of a “strong” Rupee and what life in India was like back then? Of course, the government will resort to protectionism by increasing duties back to 80-90% like in those days to keep imports down so Indian companies do not shut down completely.

    In the end, exchange rates do not matter. Fundamentally they must be tied to the underlying value of goods that people consume. If similar products very greatly in terms of the local income/price ratio across geographies, then it is a policy failure of the government to provide a similar or higher standard of living vis-a-vis people where the local income/price of the same basket of goods is higher.

    I do not follow the above logic. So it is ok to screw over the Indian consumer, who is on average much poorer than his US counterpart, by making him pay more for the same goods? Are Indian consumers not Indians? By these usurious taxes and high tariffs, the poor Indian consumer has to dig deeper into his or her disposable income. I am appalled that this basic point is lost on many people! When even basic goods like TVs, refrigerators, Air Conditioners, washing machines and others cost more in India than in the US, something is clearly wrong. Do we want to penalize Indians for buying these goods, and keep them away from modern conveniences? When “subsidized petrol” in India costs more than unsubsidized gasoline in the US, it is a blindingly obvious aberration. Who is thinking of the Indian consumer? Are the Indian government employees some kind of first-class citizens while the rest of Indians inferior in some way?

    India is poorer than many of the so-called “banana republics” quoted above. What is urgently needed is to introduce accountability in the system, reduce the usurious taxes, and reduce the role of government in most spheres of life in India. Let Indians enjoy what people in developed countries enjoy. To suggest otherwise reeks of elitism, and discrimination against the Indian consumer and citizen.

    Comment by Observer — January 7, 2008 @ 6:48 pm

  33. You’re spot on!
    Over the years I am beginning to feel that everything is one big scam here, and to avoid being ripped off you have to either join one of the scams or leave. We are paying premium prices for substandard goods and services. Why single out retail? What is the real cost of power to end users? Because the system is broken, we have to make our own arrangements (Inverters, generators). Water? The powers that be cannot give us drinking water, so spend on Aquaguard and Bisleri. Security? Appoint private guards (only for us janata, not the ministers). Roads? The less said the better. Despite paying usurious taxes and duties (education cess and then to add insult to injury-higher education cess!).
    On a recent trip to Bangkok I was amazed at the prices in the malls ( note : I am not comparing roadside stalls but the MBK Shopping Center which is very large maybe 10 times our Big Bazaar with the MRT train passing right through one end of the mall). Here, very good T shirt costs just 99 Baht which is about I think 110 Rupees. You will never get that type of quality here for this price. Similar low prices for furniture, carpets, clothes, shoes and even artificial jewellery.
    The best part is the food court on the top floor. It does not stink at all (compared to many Food Bazaar and other mall food courts here where you will get a continuous odours of all food stuff). PLUS the prices are very reasonable cost and excellent polite service-no grumpy faces here.
    I then realised that we Indians are getting ripped off every day.

    Comment by Dissenter — January 7, 2008 @ 6:51 pm

  34. Observer, the US is the beneficiary of the dollar regime. Dollar is the international currency for trade. Thus the US is able to maintain its massive deficit and receive subsidies from foreign countries, some say to the tune of 1.2 billion dollars a day. India has no such luxury. We have to use our taxes and internal borrowing to pay for public goods and services. You are focussed to consumption of white goods. In fact this blog post itself myopically focuses on that and there is nothing wrong with that. It is the issue that occurred to the blogger. But there are larger issues that policymakers have to deal with. So consumers are not exactly getting ripped off because they are not just consumers of white goods but also of public goods and services that have to be paid for with taxes (and debt which hopefully we can keep low.) We already have huge debt burden compared other developing countries. At this point of time, cribbing about taxes and tariffs is probably not helpful.

    Coming to the issue of prices of these goods under discussion here, most of these goods are not consumed a lot by the poor (whose numbers are still very large and conditions similar to sub-Saharan Africa.) The priority is to provide them public goods and services like subsidized education, roads, electricity etc. It is not about providing them pricey shirts and cars. I am least concerned about how much anything costs in a mall.

    America is already starting to suffer the consequences of a consumption culture built on debt. Nobody believes that the debt can be paid off unless the dollar is crashed. Meanwhile the financial sector is going through a crunch and selling itself off on the cheap to wealth funds from countries like China and UAE. This is the fate of all creditor nations. Rather than living beyond our means it is probably better to be conservative with our capital. Europe has high taxes on fuel and consumptive goods. It hasn’t affected their standard of living much. They consume less energy and pollute less. We should also try to build sustainable growth. But we are already going down the wrong direction. That is what I have gathered from the statistics regarding public debt and the burgeoning consumer debt in India. No wonder most non-Indian analysts are less enthusiastic about the Indian story.

    As for returning back to India. This is a different generation. Many are from middle class to upper class families. Their tolerance for suffering the uphill task of building a new life is much less. And for what? A middle-class life with luxury goods bought on credit and stagnant careers (for most people.) Many end up setting up the American version of Karyana stores. For most the dream was over before it even began. India is the growth story – for Indians and many recognize that.

    Comment by HmmBut — January 8, 2008 @ 9:49 am

  35. few reasons.
    0. High transaction costs due to govt. regulation.
    1. High tax rates and multiple taxation.
    2. Lack of competition due to entry barriers.
    3. Crony India Inc cosying up to socialistic policies of the Govt.

    Competition is Liberty.

    Comment by Anonymous Coward — January 8, 2008 @ 3:26 pm

  36. even i agree with you. the merchandise of various companies (not only reebok) are ovr priced in india . also i would like to add that some merchandise is not of good quality either. i mean i bought a nike t shirt and when i got it home the colour faded in the first wash

    Comment by rambhai — January 10, 2008 @ 8:14 pm

  37. Multiple reasons for high prices in India.

    1) Custom duties on imported products. Much higher than in the United States.
    2) Relatively low volume.
    3) On non-imported local products like Color Plus and other Indian brands, these are aimed at the well-heeled customer. For the same reason, they are discounted rarely.
    Whereas in the US, a brand like GAP which would be equivalent in quality to most of the good Indian brands, is meant for the average joe and is also priced accordingly but a brand like Façonnable is rarely discounted.
    4) A low cost economy like India is not very efficient. The distribution and transportation costs are higher than what it should be.

    Comment by Ammadio — January 17, 2008 @ 10:15 am

  38. Step out of the huge air conditioned stores you will find that the same product at 1/10 of the price on the street. Even the same design and quality. Ofcourse it takes looking around. This is how most of us without dollar salaries live. Most housewives know that going into the wholesale markets and buying groceries for a month or two will save 5-15%.
    Buy seasonal fruits (better for health too) and you will benefit all around in your pockets too

    Comment by Shalini Amarnani — January 29, 2008 @ 9:21 pm

  39. @ Shalini Amarnani

    What you say may be true of groceries, but not too sure if it’s true of apparel/ shoes.

    Yes, there may be shoes and clothes from street vendors that are cheaper than from stores in India in the malls or the air-conditioned stores but the question is, how do these street vendor items compare with stuff that I’d get in the US? If we did an apples-to-apples comparison in terms of quality, the US would still come out cheaper — much cheaper.

    @ Giri Guevara says Why did you buy Reebok in India? Try Bata’s latest line of Sneakers

    Giri — the point wasn’t about my buying Reebok or Bata… it’s about the prices of similar quality items being much higher in India vis-a-vis the US, even when many of these items are made in India and exported to the US.

    Re Bata: I can buy sneakers in the US comparable to Bata’s quality for $20 to $30 (Rs 780 to Rs 1150) which is the same or cheaper than what Bata sells for in India (I think)

    Comment by Prashant — January 29, 2008 @ 9:50 pm

  40. “It’s about the prices of similar quality items being much higher in India vis-a vis the US”
    economies of the scale

    Comment by just a thought — January 30, 2008 @ 10:28 am

  41. Step out of the huge air conditioned stores you will find that the same product at 1/10 of the price on the street. Even the same design and quality. Ofcourse it takes looking around. This is how most of us without dollar salaries live. Most housewives know that going into the wholesale markets and buying groceries for a month or two will save 5-15%.
    Buy seasonal fruits (better for health too) and you will benefit all around in your pockets too

    Comment by Shalini Amarnani — January 29, 2008 @ 9:21 pm

    ——————————————————————————-

    Umm, do you live in India? I do. Can you please point me to the location where you can get stuff for 1/10th the price inside a supermarket? Even assuming you are being rhetorical, this is more than a wild exaggeration. Here are prices on the “street” in Vadapalani, a suburb of Chennai:

    Vegetable/Fruit Street/Kirana Average Reliance Fresh/Subiksha

    1kg Simla Apples Rs. 65 Rs. 72
    1kg Guava Rs. 28 Rs. 26
    1kg Orange Rs. 62 Rs. 68
    1kg Rice Rs. 22 Rs. 22
    1kg Tomato Rs. 18 Rs. 16
    1kg Potato Rs. 18 Rs. 17
    1kg Cabbage Rs. 12 Rs. 18
    1kg Carrot Rs. 24 Rs. 22

    Mysore sandal soap: Kirana Rs. 20 Supermarket: Rs. 20
    Clinic Shampoo: Kirana Rs. 54 Supermarket: Rs 55
    Terry Towel: Kirana Rs. 145 Supermarket: Rs. 150

    These are ordinary items purchased by everyday middle-class Indians. The interesting thing to note is that some items are actually cheaper in supermarkets than in Kirana stores. It is even more interesting to note that even in the US, prices are not that much higher for things like towels, soaps, shampoos, fruits etc. Of course for things like electricity, electronic goods, petrol, cars etc, US is cheaper. Services like Internet access, for which I am paying 28$/month for a paltry 2Mbps/5GB Tata Indicom connection are more expensive than the 30$ RCN 8Mbps/unlimited and reliable connection available in the US. Mobile phones and plans, which are supposedly cheaper in India, turn out to be as expensive, or more, than comparable plans in the US which charge 40$/month for 450 anytime nationwide minutes, unlimited mobile-to-mobile minutes, and free nights (9pm – 6am) and weekends. As far as purchasing property goes, most metros in India, where modern jobs are available, are increasingly out of reach for the middle-class. Rents in Chennai for a 2-bedroom apartment in a complex with mediocre infrastructure average an astounding 400$/month, not much lower than the typical 750$/month in Austin, Texas. Including commuting time, working hours in India are quite long as one typically spends more than 12 hours outside the house. That plus the lack of open spaces like parks etc to go walking/jogging/playing with family, and also the animal road rage on the streets and chaos and pollution, makes it quite stressful.

    My sobering conclusion is that life in a metro in India is actually as expensive as a typical midwestern or southern US city. Those people living on the coasts in the US should try and shift to these locations in the US, rather than coming back to India, unless of course they can negotiate a US-level salary in India. It looks like India is optimized for an Indian farmer’s life, while the US is optimized for a modern lifestyle. People need to adjust their expectations accordingly or there will be disappointments. To the typical knee-jerk crowd, who amusingly might live in the US, you need to actually do a complete analysis like the above and back up any disagreements with facts.

    Comment by Observer — January 31, 2008 @ 3:01 pm

  42. There are multiple reasons for this:

    1. Many consumer goods MNCs which entered Indian relatively (to HUL or P&G) recently have adopated a market skimming strategy. Investment is minimal leading to smaller volumes and higher margins.

    2. Modern retail is the most inefificient model of retail trade in India (so far), fixed and opertional costs are very high.

    3. Reebok and some other brands are very myopic and are happy serving only the top 2% of the Indian population.

    Comment by Nitin — March 23, 2008 @ 1:27 pm

  43. why comparing price of reebok/electronic products.compare parking charge of your 4 wheeler,which is not more than Rs10 for 2 hr. compare cost of medical treatment/medical insurance.here we can have nice food in 5 star restaurant with Rs300-400 per head.we can hire a driver with monthly salary of Rs 4000(that too in metro, in small cities its far less.)a cook/servent is ready to stay at your house full day with salary of 4000 per month.(can you ever think about this in US with $100 per month).you get your car washed daily with Rs 200 monthly…

    Comment by avinash — June 26, 2008 @ 6:30 pm

  44. Well, there are things that are actually quite cheap in India (Bangalore).

    Vegetables. for a week, for a family of four : Rs 175 ( $4.5)
    Rice – Rs 24/kg ( 25 cents a pound)
    Mango – Rs 30/kg – Banganapalli – (32 cents a pound)
    Taxi to the Airport (Quite far) : Rs 300 ( $6.5)
    Eating out :
    Nice Buffet – Rs 250-300 ( $6-7)
    Unlimited South Indian meal – Rs 60 ($1.5)
    Limited North Indian Meal – Rs 40 ($1)
    Haircut – Average place – Rs 40-60 ($1 – 1.5)
    – Upscale with Shampoo and Dry – Rs 200 ( $5)

    The list can go on…..

    Yes, Consumer Goods like Shoes and Shirts are very expensive. Either it is the duty component that plays a role in this OR it is because they are aimed at the middle and upper middle class and hence not discounted as in the US.

    But as they say, when you seek out, you can get what you want at a good price.

    I happen to frequent this nondescript store, which sells “for export” type of clothes (Gap, Banana Republic, Abercrombie ….) where one could buy a shirt for about Rs 250-250. Conceptually similar to Ross or Marshalls but unlike those stores, these stores are very well maintained and well laid out with excellent customer service.

    Comment by Ammadio — June 27, 2008 @ 2:31 pm

  45. I think in general, in India, goods are more expensive than in the US, while services are cheaper. So, depending upon the relative weighting of the components in the personal consumption basket, personal experiences may vary.

    Comment by Observer — June 30, 2008 @ 9:49 pm

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