Shop till you drop! Onset of a new market revolution has brought a new avatar to Indian urban markets. In the last few years, right after some Indian conglomerates entered the retail world, the traditional shape of the sector as well as buying habits of people have suddenly changed. A market report reveals that a large urban population between 20-34 age groups is boosting demand by 11.1 percent to Rs 23,308 purchasing power in 2004-05.

Gradual development of India’s retail market has positioned the country in the list of world’s foremost destinations for retail investment. Consequently, big international retailers are now keen to take part in the booming retail sector of India as the industry accounts for ten percent of its GDP and eight percent of the employment to reach US$17 billion by 2010. Sooner or later, there are about 300 new malls, 1500 supermarkets, and 325 departmental stores expecting to be turned up in or around Indian cities.

Growing Leaders

Retailing is a low-margin, high volume business where profitability gets stained as competition intensifies. However, big players are confident. Overseeing the future of growing retail sector of Indian market, Reliance group chairman Mr Mukhesh Ambani, who kicked off ‘Reliance Fresh’ outlet in Hyderabad, said there is enough room for six-to-eight players. In fact, the reason behind Mr Ambani’s optimism is the country’s predominantly young working population having disposable incomes that are expected to increase at an average of 8.5 percent till 2015 and a steadily climbing per capita income. Ideally, India’s retail sector is the expectation of a large working and earning population that has attracted most global retailers to the country. In this respect, most analysts are agreed that the Indian retail market could support—at its best level—ten large players with revenues in excess of US$2 billion each by 2015. However, industry insiders even say that a large number of new entrants may not be committed to retailing in the long-term. While some almost certainly are looking to act as silent partners for foreign players, others may be more willing to look at an exit option a few years down the line. “I see consolidation happening in the next five years. That’s when the shakeout will happen and successful retailers will look acquiring less profitable ones”, says Hemant Kalbag of AT Keanery.

Though big things are in the pipeline, as of now, the retail turf is now set for some frenetic activity. For instance, Reliance Group has drawn up Rs 250 billion retail plan that would create its outlets in 784 cities and small towns by 2010. Whereas there are already 17 outlets opened in Hyderabad alone, the company has plan to increase it up to 40 in the next couple of years.

India’s current retail chain like Future Group’s Big Bazaar is clocking heady sales––growing at 100 percent year-on-year. As long as such big player succumbed a great success in retail market, dozen of odd shops in its proximity wear a deserted look. A true instance can be seen at traditional retail outlets at DLF Mega Mall––located in the IT and ITeS hub of Gurgaon––bearing a deserted look. Of the few operating shops in this large mall, most have nearly a customer. In what seems like a quirk of circumstances, malls have sprung up all over urban India in anticipation of a consumption boom that may itself prove to be eventually truant.

Look at Mulund (West)––a suburban locality of India’s financial nerve Mumbai. Why Rajesh Prashrar, a resident of the suburb, goes to Big Bazaar, Apna Bazaar, Subhiksha, Spinach, Shoprite, and Foodland? The reason: all of them are located within the radius of two kilometres from his home. This is paralleled with the developments happening in the suburb of Gaziabad (Delhi border), where the upcoming Shipra Mall at Indrapuram already has Big Bazaar at its lower ground floor while Reliance is knocked out to open shop on the third floor. Although Reliance is by no means the only one––or even the most domineering one––its entry has caught the eye as symbolising the new waves of retailers.

Around 40 million people in India make living from activities that come under the retail sector. To a great extent, the success or failure of malls will be the pivotal element to hinge on the consumer population of the area. “If the spending power of consumers is high in a locality, it could sustain two-to-three large players”, says Deepankar Sanwalka, Executive Director, KPMG.

Future Vision

Reliance, AV Birla Group, Tatas, Godrejs, Bhartis, Mahindras, ITC Group, Wadias, and a horde of others would come closer to Rs 1 trillion in the business of retail over the next five years. In the crosshair activities of the companies, there are a host of retail-related activities such as cold chains, retail supply logistics, warehousing, sourcing and merchandising management. As the players have hit the ground running, Reliance is hiring overseas partners to beef up its management capabilities. For its fresh stores, the company has rope in Peter Bracher from Asda Wal-Mart as special adviser and Kevin Pleass from Tesco, UK to help with store design and construction. Ahead of its Rs 50 billion retail rollouts, AV Birla Group is on hunt for an overseas partner.

Kishore Biyani, Managing Director, Pantaloon Retail (India) Limited, has announced plans to roll out 225 Big Bazaar stores and hundreds of other outlets in other formats in the next four years. Earlier this year, Tata Group too expanded its footprint—beyond the formats rolled out by group’s company Trent of Westside—by entering the durable segment in collaboration with its Australian partner Woolworths, with the launch of Croma store. “We plan to have a national presence of 60 stores by March 2009, with a capital of Rs four billion”, says RK Krishna Kumar, Director, Tata Sons. And in the grocery segment, other players like Dubai’s Landmark Group with its Lifestyle and Max outlets are also keen to expand in India’s retail sector. A report indicates that the Dubai-based company had talks for a tie-up with the hypermarket chain Carrefour.

And other players like the K Raheja Group’s Shoppers’ Stop and the Rajan Raheja-controlled Globus are expanding their reach in the apparel and accessories segments. ITC, a big player in its own right and other major players like Godrej, Century Textiles, and Raymond as well as mid-size players like Vishal Megamart, Subhiksha, and Sabka Bazaar are busy increasing their footprint.

Wal-Mart’s Arrival

Recently, world retail giant Wal-Mart Stores Inc and India’s Bharti Enterprises signed for a 50:50 joint venture for Indian cash-and-carry and retail back-end operations. Bharti Wal-Mart Private Ltd would be the title of the joint venture that would open 10 to 15 cash-and-carry, or wholesale, facilities in India over the next seven years. Main items to be dealt in the joint venture include clothing, consumer durables, groceries, consumer appliances, fruits, and vegetables.

Only bulk buyers like big retailers and institutional buyers like hotels, restaurants, and offices will be able to buy from Bharti Wal-Mart Private Ltd. “The first store will open by end-2008 in a tier II city in northern India”, said Mr Raj Jain, President, Wal-Mart India. He added that India could become a sourcing Wal-Mart base for the country like China. Bharti Enterprises MD Mr Rajnan Mittal expressed that the venture would invest in setting up an efficient supply chain.

Taking a cue from global leaders who are eyeing India, the country’s retailers are thinking big. India’s retail industry, valued at nearly US$350 billion, is projected to double by 2015. For instance, Reliance Retail has chalked out a plan to roll out about 5,500 stores of all kinds in 800 cities, 85 logistics centres and 1,600 farm supply hubs. AV Birla Group is looking at pumping in Rs 150-200 billion, with an initial investment of Rs 50 billion in the next few years.

Long Run

Hitherto, most retailers have preferred to go in for long-term leases. A source from PricewaterhouseCoopers (PwC) reveals that the current average lease rentals across some of the top cities range from Rs 88 per sq feet per month to as high as Rs 120 per sq ft per month.

After his deal with Wal-Mart, Mr Sunil Mittal said his top priority would be real estate acquisition, whether through leasing or buying. To that end, the newly formed combine is roping in DLF, Emaar, MGF, and Ansals to act as partners and developers. Such an arrangement could prove to be a win-win solution that could improve asset utilisation of the developments. And players like Reliance could set up hypermarkets in their own SEZs to meet the needs of local residents.

Another way out of this problem, as some astute retailers have found out, is to become an anchor tenant. According to PwC estimates, an anchor tenant typically commands a discount of 30-45 percent on lease rentals and is responsible for attracting footfalls into a mall.

Retail biggies like Pantaloon Retail, Shopper’s Stop and McDonald’s have been quick to endorse this strategy. For instance, Pantaloon has signed up with 100 of the 300-odd malls that will be developed over the next three years.

Right Track

Big retailers in India are trying out a variety of formats, such as discount stores, supermarkets, hypermarkets, and specialty chains. However, of late, most players appear to be gravitating towards the hypermarket format. Retailers like Pantaloon, RPG, Piramals, and Tatas are thriving towards exploiting this model, perceived by consumers as more value enhancing method. But in the long run, what is most likely to succeed is a more balanced multi-format strategy.

This helps retailers adapt to the very different shopping patterns that can exist within the country and even within regions. Finally, while in the first flush of the retail boom, the elimination of traditional intermediaries may bring windfall gains as well as bring welcome and much-needed relief to the producers.