Sunday, February 10, 2008

Analysis: India’s organised Retail sector strengthens into 2008

India's organised retail sector, which attracted numerous players in the last year, with big names like Bharti, Reliance and Aditya Birla trying to establish foothold, is set to witness manifold growth in times to come.
The lively sector will see an expansion in operations of existing players and the debut of others like Mahindra & Mahindra (BSE:500520), Parsvnath (BSE:532780), DLF (BSE:532868), Hero Honda (BSE:500182) and Indiabulls.
Industry estimates predict that the overall size of the retail sector in India is expected to touch US$427 billion by 2010 and US$637 billion by 2015 with the organised segment expected to account for 22 per cent by 2010, up from the present four per cent.
"Overall, the future looks promising notwithstanding the immediate hurdles," Asitava Sen, KSA Technopak's vice-president of retail and consumer goods, told PTI.
Looking back, the sector faced quite a few hurdles in the last year, such as the controversy over the involvement of foreign direct investors (FDI) in multi-brand retail and a nationwide protest by small traders against the bigger fishes.
The government's plans to open up the retail sector for foreign firms remained in cold storage in 2007, while domestic companies strengthened their foothold in the sensitive industry, despite agitation by smaller traders.
Political opposition stopped the government from allowing greater foreign investment, yet the world's biggest and second-biggest retailers, Wal-Mart Stores Inc of the United States and French firm Carrefour, found a way in to establish their presence in the US$330 billion lucrative industry.
The action-packed year, however, began on a wrong note for global players wanting to enter India with UPA Chairperson Sonia Gandhi expressing concerns over the government's foreign direct investment policy in retail.
In a letter to Prime Minister Manmohan Singh, she asked the government to address issues raised from many quarters on the impact of these supermarket chains on the livelihood of small stores.
While this was music to the ears of opponents of FDI in retail, especially the Left parties, the commerce ministry pressed ahead with plans to increase FDI limit to 51 per cent in specific categories, like electronic goods and sports items, although the Cabinet note in this regard is yet to be cleared.
The government is expected to examine FDI in multi-brand products only after it receives reports from Indian Council for Research on International Relations and the National Council for Applied Economic Research.
Currently, 51 per cent FDI is allowed in only single brand retailing.
"2007 has been a mixed one for the retail industry. There were not much progress on further relaxation on FDI policy and the 'big vs small' debate has taken a larger political shape," Sen said.
Realising the potential of the organised market, domestic players such as Reliance Retail, Aditya Birla Retail, Essar, Future Group, and Shoppers Stop continued to expand amid opposition from political parties and small traders. International consulting firm Ernst & Young predicted that the organised retail market in India will touch approximately US$30 billion by 2010.
India also remained as the most attractive retail market for the third year in a row in an index prepared by another consulting firm AT Kearney.
The year began with telecom giant Bharti Enterprises announcing a roadmap for its retail business. Bharti, which has tied up with Wal-Mart for back-end operations, will invest US$2-2.5 billion by 2015. Toward the end of the year, Carrefour said it will foray into the wholesale and retail business by 2009 through different entities. Rival Mukesh Ambani-led Reliance Retail, which opened its first speciality store 'Reliance Fresh' in 2006, went on an overdrive by opening different formats, including a Hypermarket in Ahemadabad and speciality stores for footwear, jewellery, books, music, apparel and others as a part of its Rs 25,000 crore (US$6.3 billion) investment plan until 2011.
However, the company also bore the brunt of protests from small retailers in Delhi, Uttar Pradesh, Orissa and West Bengal. In Uttar Pradesh, the state government asked Reliance and RPG's Spencer to close outlets and set up a panel to study the impact of organised retail on local traders.
Such was the attractiveness of the Indian retail market that even global IT giant Microsoft launched its first shop-in-shop pilot with Tata Group firm Infiniti Retail's multi-brand consumer durables retail format - Croma. In January this year, Croma announced its entry into North India with its outlet in Delhi. Not to be left behind, rival Apple Inc entered into an exclusive marketing and distribution deal with Reliance Retail through "iStore by Reliance Digital".
Pioneer of organised retail in India, Kishore Biyani's Future Group carried on with its expansion plans aiming a revenue of Rs 30,000 crore (US$7.6 billion) by 2010. The group announced a new retail format, KB Fair Price Shops in the lines of local kirana stores.
The sector also attracted other homegrown business houses which announced plans for a foray into the burgeoning market. These included farm equipment-to-software group Mahindra&Mahindra, real estate developer Parsvanath, two-wheeler maker Hero Group and Aditya Birla group which acquired Andhra Pradesh-based Trinethra Super Retail Ltd. FMCG major Dabur also set up a subsidiary--H&B Stores to run its 'New U' branded stores with an initial investment of Rs 140 crore (US$35 million) for opening retail stores across the country to sell products in the health and beauty segment.
RPG Group-owned Spencer's also embarked on a new branding strategy and trimmed the number of its current retail formats, while focusing on retailing food items with plans to invest up to Rs 2,500 crore (US$635 million) until March 2009.
Besides, private equity investments and public issues also gained greater momentum and M&A activities picked up during the year. Indiabulls Wholesale Services, the retail arm of Indiabulls Real Estate acquired 63.92 per cent stake in Piramyd Retail at an enterprise value of around Rs 208 crore (US$53 million).
While multi-brand retailing remained out of bounds for overseas firms, a number of foreign luxury brands lined up for permission to enter through the single-brand retail window. Luxury retail in India, which is pegged to grow to US$30-billion by 2015 from the current US$3.5 billion, attracted elite foreign brands such as French Connection, Hello Kitty, Jimmy Choo, La Pearla and Calvin Klein. Gucci has already opened up a store in Mumbai.
The retail story, however, was not only confined to urban India. The rural market also did not miss the attention as incomes rose, consumption pattern changed and infrastructure improved.
India Brand Equity Foundation predicts that rural retail market would cross US$45 billion by 2010.
Corporate India, led by the likes of ITC and Adani Agrifresh firmed up plans to tap the market, which is growing at double the rate of urban markets with innovative schemes and human resource policies.
ITC, after establishing 6,400 kiosks covering 400,000 farmers, plans to increase its e-Choupal footprint by adding 20,000 more kiosks and 10 million farmers. Adani Agrifresh plans to invest US$250 million in the next three years to create a supply chain from farms to retailers of fruits and vegetables. Reliance Retail also said it planned to establish links with farms on several thousand acres in Punjab, West Bengal and Maharashtra.
On the other hand, some retailers like Koutons and Vishal Retail came out with initial public offers during the year to fund their expansion activities. "PE and IPOs will fund growths in the sector. On the back of the huge growth in organised retail, investments in the sector are likely to increase from US$ 3 billion in 2006 to over US$25 billion by 2010," E&Y Partner and National Leader, Retail and Consumer Practice Ranjan Biswas concluded.

1 comment:

aliah said...

Hello,

Nice article has been shared here. It was fun reading your this article and also did get lots of good points from here. it would be great if you can share some information related to brochure holders here in this article. keep on posting such article here in future too.

Thanks,