Retailigence

“Club of Knowledge Hunters”

Retailers rethink expansion as boom falls short of expectations

Posted by retailigence on September 1, 2008

THE WALL STREET JOURNAL SPECIAL – MISCALCULATED PACE –  27aug2008

India’s expected retail boom hasn’t taken off, leaving companies large and small to rethink their expansion plans.

Wal-Mart Stores Inc., which unveiled plans to enter India with a joint venture partner two years ago amid great fanfare, will open its first wholesale store next year, but it won’t comment on future plans. Three Build-A-Bear Workshop Inc. franchises in India opened by Murjani Group have closed. Straps, a chain run by India’s Oswal Group that featured Wonderbra lingerie from US-based Hanesbrands Inc., has closed its more than 20 stores. Big German retailer Metro AG, after five years here, operates only four wholesale stores; the company says it is taking its time developing its Indian business.

India’s retail industry—including everything from carrots to cars—clocks around $350 billion (Rs15.44 trillion) a year in sales. That figure had been expected to double in the next seven years. But now, some retail executives are tak ing a closer look. Growth is less than hoped for. And thousands of new shops have sprouted in the past few years, so there are more players com- peting for the same consumer.

Just three years ago, an explosion of conferences, analyst reports, websites and magazines predicted the arrival of a new Indian consumer who would change the global retail landscape. The first modern retail stores here were so popular that many entrepreneurs thought people would buy almost anything at any price. They were wrong, as both large and small retailers are discovering. For some, the forecast retail boom that promised jobs for Indians and a new market for global retail giants is already a bust.

“I was an eternal optimist; now I have become a realist,” says Kishore Biyani, chairman of Pantaloon Retail India Ltd, India’s largest retailer by sales, which has revamped its expansion plans as it discovered more about Indian consumers.

“Everybody has miscalculated.” Most retailers say they are grappling with the same problems: rising costs and fewer buyers. In the early days of the boom, retail rents and salaries soared, though recently they have started to come down a bit. Many outlets discovered that consumers didn’t really want their products. And un like shoppers in Asia’s other booming economy, China, Indians are rarely willing to pay 3-10 times more for an international brand than for its domestic equivalent. The average Chinese consumer has more disposable income, and more than a decade extra of experience with international brands.

Ritu Sureka opened her home furnishings store “All Living” in the Grand Sigma Mall, Bangalore’s newest, in 2005. She was sure the Indian tech capital’s programmers and call centre workers would spend their rising salaries on stylish lamps and pillows for their new homes. Now she is advertising a 70%-off sale, and still doesn’t make enough money to cover the rent. “I think this retail thing has been a failure,” the 45-year-old says.

Nevertheless, India still generates excitement among some investors. Earlier this month, both British retailer Tesco Plc. and Vornado Realty Trust, one of the largest mall developers in the US, announced plans to enter the country with local partners. Some retailers, especially those catering to budget shoppers, are thriving. And deeppocketed companies such as grocery store chains are willing to shoulder losses for a few years, assuming Indians will become accustomed to mall and supermarket shopping instead of buying at the country’s millions of mom-and-pop stores.

Shoppers Stop Ltd, one of the first companies in India to attempt modern clothing and houseware chains, has posted net losses for the past two quarters. Some companies that still have big plans, including Indiabulls Financial Services Ltd and Aditya Birla Group, have changed tack, closing some stores and making management changes. “We all have to go through some restructuring and shakeup,” says Thomas Varghese, chief executive of the Aditya Birla retail unit, which has more than 500 grocery stores. Most were built in the past two years, and few are profitable yet. “The Indian consumer is a damn tough customer.” If retail growth sputters, India will lose an important avenue for growth to trickle down to the masses: the jobs retail provides.

The country’s recent economic expansion has been fuelled largely by its service sector, and hasn’t created millions of manufacturing and export jobs in the way China’s boom has. But the Indian government had counted on retailing to soak up millions of rural and young job seekers. Two years ago, Mukesh Ambani, chairman of Reliance Industries Ltd, projected that thousands of his new stores would provide jobs for “500,000 young boys and girls in the next few years”. Since that speech, the company has built around 700 stores, an impressive number but far from earlier targets.

In the Grand Sigma Mall, not far from Sureka’s shop, an outlet that sold VF Corp.’s Wrangler Jeans has pulled out. On the ground floor, other stores are empty, including a former Reebok store.  “Everything is overpriced here,” says Vignesh Vishwanath, 21, a computer programmer for Microsoft, drinking coffee with a friend at the mall. “This coffee, for example, is Rs85 here. At the cafe near my house it is only Rs60. You can never compete with the local market.”

Sources:-Mint

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: