Reinventing the retail sector

A Louis Vuitton store in Mumbai. Several exclusive brands have found quality spaces in the Indian market. - SHASHI ASHWAL

The retail industry is poised to grow as foreign investors show much interest in the emerging Indian market.

FOR the retail industry in India, things have never looked better. Until a couple of years ago, it was a fragmented whole of about 15 million entities, considered the largest in the world. In their attempt to scale up in size, Indian retailers are more or less adopting the various models that have succeeded in the West. Yet Indian retail trade is still not organised or large-scale. Krish Iyer, chief executive officer of Piramyd Retail, said: "The organised retail industry in India is a mere three per cent [estimated at Rs.35,000 crores], which goes to highlight the huge opportunity available, and is poised to grow to Rs.110,000 crores by 2010."

Except for Pantaloon Retail (India), which is on average opening three-four stores a month, and the FoodWorld Supermarkets Limited, which has about 96 stores countrywide, most other players have been unable to scale up fast enough, make huge investments to build a high-quality mall and manage it to ensure good returns. (RPG started FoodWorld in 1996. In 1999, the group's retail arm, Spencer & Co., entered into a joint venture with International Dairy Farm of Hong Kong to run the supermarket chain. Earlier this year the two partners parted ways, with RPG retaining 49 of these stores.)

Neither has it been profitable for the smaller players, though many of them see the profits accruing in the not-so-distant future. Almost all retailers and investors queried see it as an industry that is going to thrive and create job opportunities in the process.

The sheer popularity of malls and their immense potential to combine entertainment, dining and shopping and provide 24/7 services are attracting retailers.

India is truly opening up its economy to the world by showing interest in established global players like the successful American retailer Wal-Mart. It has several things to recommend itself to local and foreign players. Apart from having the largest population of under 25 in the world and a 400-million strong middle and upper middle classes, India has one of the fastest growing economies in the world. Its gross domestic product (GDP) reached 8.1 per cent between April 2004 and June 2005 from 7.6 per cent in the corresponding period the previous year and the rate of inflation has fallen.

Krish Iyer said that with the services sector leading the robust GDP growth in the past decade, the retail sector would be the next big thing for India. In fact the global management consulting firm A.T. Kearney in its Global Retail Development Index (GRDI), a survey to help retailers choose their destination for investment, has ranked India first among 30 emerging markets. The firm's another annual survey, the Foreign Direct Investment Confidence Index (FDICI), has indicated that corporate executives are optimistic that China and India are the world's most favoured destinations for foreign direct investment (FDI).

For India, the boom is set to drive the economy. Banks, real estate moguls, textile giants of yesteryear and petro majors are all keen to invest in this sector. However, long-term funding, development of retail infrastructure and planning are challenges that could impede the growth of the sector. In addition, the lack of trained and skilled labour is being felt. This has not prevented brands such as Hugo Boss, Louis Vuitton and Daks, from finding quality spaces in the Indian market. Many exclusive brands are tying up with Indian manufacturers to source quality garments. India is delivering value-propositions on a number of fronts.

V. Vaidyanathan, Country Head, Retail Banking, ICICI Bank, speaking at the Shopping Centres and Retail Conference in Mumbai recently, said that in 2000 there were three malls in India and in 2003 there were about 25. This year, close to 200 malls are either being developed or are on paper. Vaidyanathan said that retailers and developers needed to consider factors such as zoning laws and positioning of specialty or entertainment malls.

The silver lining for the industry is that Indian consumers have a higher purchasing power now.

Considering the nascent status of the sector and the transformation of the Indian buyer, factors such as the ever-changing consumer preferences, the demand for value-for-money deals and convenience, and the threat of foreign investment (the largest Indian retailer has a turnover of Rs.1,000 crores while Wal-Mart has a turnover of over $200 billion) cause concern among local players.

Retailers are demanding the easing of labour laws and the regulations on acquiring real estate and getting FDI to promote areas such as food supply chain infrastructure. Retailers and developers are also now grappling with the question of how best to develop and manage their malls, moving gradually away from the `build and sell' model.

In the past year alone, even small cities and towns have witnessed the growth of malls. Places such as Nagpur, Ludhiana, Chandigarh, Gurgaon, Thiruvananthapuram, Coimbatore, Ahmedabad and Pune, which have a large number of people with purchasing power, are the latest attractions for retailers.

Crossword, the book retailer, has had such a success in Ahmedabad and Pune that it has tripled its retail space in both cities.

According to Kishore Biyani, managing director, Pantaloon Retail, the Indian market currently has about 50 million square feet of retail space to offer. Pantaloon Retail has signed up for 20 per cent of that space. It currently has 2.1 million sq ft in retail space and wants to double this by next year.

Despite the favourable factors highlighted by the GRDI ranking and the FDICI report, Krish Iyer feels that the key challenge will be to promote growth through employment generation and demographic transition.

As a huge investment is required to realise the potential of the retail sector, FDI is being viewed as a serious option. Also availability and management of talent as well as speedy implementation of plans are the needs of the hour, he says.

For the mall culture and retail business to succeed, retailers must constantly rework their strategies to attract customers and reinvent their products.