Retail 2007: Shake, rattle & rollout

Beyond the Tata-Woolworth deal, the Bharti-Wal-Mart joint venture and much before Reliance Retail put its massive plans on the ground, an event on January 26, 2006, indicated the frenzy organised retailing was creating.

It was a mega sale at select Big Bazaar outlets — before any of the stores opened for business, queues were snaking out onto the streets. Such was the rush to pick up products at knocked-down prices, that some 5,00,000 customers crowded the stores and most of the outlets declared stock-outs and had to shut down by afternoon.

If 2006 was hot, then 2007 promise to be scorching. The Indian retail market is worth $320 billion, is growing at 8% — but only about 5% of that is accounted for by organised players. While the old guard of retailers fights back, new entrants like Reliance Retail, and soon Bharti-Wal-Mart, will be going into an expansion overdrive. Expect ripple effects — right from the quest for prime locations, expected to push real estate costs further north, to no-holds-barred wars for talent.

And the battleground won’t just be the big metros — cities like Baroda, Vizag, Kochi, Durgapur, Asansol, and Indore will see plenty of action. Indeed, it is the potential of a vastly under-penetrated market that’s spurring players on. A back-of-the-envelope calculation indicates that by the end of 2007-2008, major retailers would have added more than 6,000 new stores across various formats in India.

And that doesn’t include local retail players looking at a pan-national presence, buoyed by rising disposable income and purchasing power. “It’s a nascent industry now, but the planned investments by players will fuel growth and organised retailing will account for 15% of the total retail trade in the next three years,” says Harsh Goenka, chairman, RPG Enterprises.

According to the 2006 Global Retail Development Index conducted by AT Kearney, India is the most attractive destination for retail participation for global retailers. “It’s like the wild west, an uncharted place where players can ride as far as one can and plant a flag to claim territory,” says Raman Manglorkar, head of consumer and retail practice, AT Kearney.

According to Ajit Joshi, CEO, Croma, the multi-brand consumer retail format from the Tatas, 2007 will mark the beginning of a marathon, in which some players will fade away. “The trigger has been pulled and competition will only increase in all formats,” he says.

The year has also indicated that foreign retailers like Wal-Mart and Tesco aren’t going to wait for a change in FDI rules, and instead forging alliances with strong Indian partners. “The Bharti-Wal-Mart JV proved that there is a way around current legislation,” says Tim Sleep, head of retail, E&Y UK.

Govind Shrikhande, CEO, Shoppers’ Stop, believes that FDI policies can be relaxed with certain specifications. For instance, exclusive clauses that make it mandatory for foreign retailers to maintain exports in excess of their domestic turnover can be considered, he says, adding that when exports starts, the domestic quality also improves.

Even as there are untapped opportunities, there are hurdles. Two critical components — real estate and manpower — will continue to pose severe challenges to retailers. “It’s quite frightening. Store openings and profitability will be affected if real estate costs keep increasing,” admits Shrikhande.

Observers, however, say that real estate prices will come down to manageable levels in the long run. “There are a lot of properties that will come back into the market as they were not successful or were badly managed. So it will even out. But, then, there will be a strong focus on real estate in Tier II and Tier III cities,” says Manglorkar.

According to industry estimates, attrition is hovering around 4-5% on a monthly basis. “We are talking about 10 million sq ft space to be available in the next few years. But I need people to run the stores and there’s no sight of the situation improving in the near future,” says Goenka.

Joshi of Croma is widening the net and is looking to tap personnel from Industrial Training Institutes (ITIs) and even science graduates. “The products on our shelves are very technical. So it makes sense to source people with a technical background,” explains Joshi.

Similarly, Shoppers’ Stop has tied up with institutes for training programmes for its customer care associates and deputy managers. “There is a collective effort needed which is not happening so far,” says Shrikhande. The silver lining, though, is that the industry is likely to gain status as a career option with the entry of corporates in retailing. “While there will be pressure on the people front, the upside is that retail jobs will not be looked down upon,” says Dipankar Halder, CEO, Spinach.

So, going forward, retailing will move from a nascent sunrise sector to a full-fledged industry. Expect mergers and acquisitions, high profile movement of senior personnel and some important listings on the bourses. Also, expect reams and reams of newsprint spent on tracking the segment.

Source : Economic Times