Tuesday, April 25, 2006

Paran Balakrishnan: Great Indian retail gold rush starts

Wal-Mart chief executive John Menzer has a dream. He'd like to turn the Indian bazaar into kilometres of gleaming supermarkets, seeing India as a huge organic growth opportunity for his company.

Menzer isn't the only one who's pawing the ground waiting for the starter's gun on the great Indian retail gold rush.

The biggest names on the global high street, such as Carrefour and Tesco, have sent in crack teams to scour India and hold talks with local partners. Other retail giants waiting for the green light include Ikea and Debenhams.

The Wal-Marts and Tescos aren't the only ones turning their gaze on the Indian shopper. India's top business houses - names more usually associated with oil refineries, steel and telephones - have suddenly decided that there are pots of gold waiting at the end of the retail rainbow and they are drawing up billion-dollar blueprints to lure Indian shoppers.

What's all the excitement about? Everyone has suddenly woken up to the fact that the Indian retail sector is one of the most fragmented in the world and is almost entirely dominated by small mum-and-dad stores or even push-cart vendors. Only 3 per cent of Indian retail is in the organised sector. That's compared to about 20 per cent in countries such as China and Thailand where companies like Wal-Mart and Carrefour have changed the way people shop.

Since everyone now believes that India is following Southeast Asia and China when it comes to growth patterns, it's hardly surprisingly that they've homed in on the sector. So, every Indian business house with cash or land to spare is figuring out the quickest way to become a retail giant.

Most ambitiously, there's India's homegrown oil and petrochemicals colossus Reliance that's frightening the competition by putting together a five-year, US$6 billion ($9.4 million) scheme to straddle the retail sector in everything from supermarkets to luxury boutiques. Reliance is even said to be talking to foreign luxury brands like Giorgio Armani and shoemaker supreme Manolo Blahnik. Reliance is playing its cards close to its chest but it has already hoovered up a team of experienced managers to head the different arms of its retail ventures.

In terms of pure ambition, Reliance is far out in front. But the others aren't thinking small, either. Mobile phone giant Bharti, for instance, started by manufacturing telephone handsets during the 80s and then morphed into India's largest mobile phone conglomerate during the past decade.

Today, owner Sunil Mittal says he will focus on agro-products and retail and is on the verge of striking a deal with Tesco to start a chain of supermarkets.

Similarly, the Tatas, one of India's oldest business houses with interests in everything from steel to cars to telecom, has tied up with Australia's Woolworths and has plans to start a consumer durables chain, most probably under the Dick Smith label.

The Tatas also own the Westside department chain and are looking for ways to expand it quickly.

Also in the fray are other entrepreneurs who spotted the retail opportunity back in the 90s. Leading the pack is retail giant Kishore Biyani, who has a chain of department stores, supermarkets and is putting up his own malls. He's also looking at anything in retailing, from jewellery chains to furniture and pharmaceuticals.

Biyani started with a tiny company called Pantaloon, making readymade trousers in the late 80s. He now has about 280,000 sq m of store space and wants to increase that to more than 600,000 sq m by the end of next year.

Biyani is India's retail king but a string of others are trying to emulate him on a smaller scale. The Godrej group, for instance, is hoping to turn its vast land holdings into retail space.

There's one catch that must be overcome before many of these corporate dreams become a reality. Under present rules, most foreign companies may not invest in the retail sector. The Congress-led Government is eager to throw open the sector but has been stopped by the communists on whom it depends to stay in power.

The Government has already taken a few tentative steps, despite squawks of protest from its allies. A few months ago, it permitted single-brand stores to set up shop. Nobody has yet tested this rule but it probably means that companies like Nike can now open company-run stores to sell their own products. Everyone is cheerfully working on the assumption that the market's about to be thrown open to foreigners. Wal-Mart's chief was in India not long ago and Woolworths has confirmed that it has struck a deal with the Tatas.

In fact, everyone's now convinced that India is likely to follow the Chinese model when it comes to opening up the retail sector.

China began by allowing the Carrefours and Wal-Marts to open shop in cities such as Beijing, Shanghai and the provincial capitals.

They have prospered in China, and they'd be quite happy if India moved the same way.

But all the ambitious plans will face plenty of hurdles in the coming years.

Topping the list is the shortage of talent.

Since there's no retail tradition in this country, there are no managers with experience of the intricate retail game.

And, at the shopfloor level, there are no sweet-talking salesmen trained to handle pernickety customers. At a different level, Wal-Mart says India's poor infrastructure will make it difficult to run efficient supply chains.

But whether the foreigners are allowed in or not, the new Indian retailers are already changing the way the game is played.

Retail consultant KSA-Technopak says the total space controlled by organised retailers will triple between 2005 and the of end 2007 to about 8.2 million sq m.

Past experience in countries like Thailand has shown that the retail trade can change at warp speed. About 20 years ago, Thailand was where India is today, with about 3 per cent of business in the hands of organised retailers.

Today, it has changed beyond recognition. And all the giants on the prowl, Indian and foreign, are hoping that the same scenario is about to be played out here.

* Each week the Business Herald's columnists track the latest developments in the world's two emerging economic superpowers. Paran Balakrishnan is an associate editor of the Telegraph, Kolkata.


Blogger Dayan said...

Reliance Retail is definitely a threat for entrepreneurship. Even though it
generates 600,00 jobs this is not what companies like Reliance should be doing.
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10:03 PM  

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