The retailing boom

MARKETMIND

In the past years, a lot has been written about the so-called revolution in the Indian retail sector and the boom it has supposedly been experiencing.

Magazines of all genres have routinely come out with cover stories on this subject though most of the time, their coverage has been almost unanimously based on the growth of a few leading retail businesses e.g. Shoppers Stop, Trent (Westside), RPG Group (Foodworld, Musicworld, Giant), Pantaloon / Big Bazaar, Landmark Group (Lifestyle) and a handful of others.

Again, most of the time, the euphoria has been largely been based on the metro, upwardly mobile consumer. No wonder, despite all the hoopla about the retail revolution in India, the share of the "organised" retail remains an insignificant 2 per cent or so of the total consumer spending in India.

Is it, therefore, a wasted effort to write one more column on this subject? I believe that this time, there are some very interesting signs of fundamental change in the consumer and retail business environment in India that are likely to give an unprecedented momentum to the growth of modern retailing in India.

First significant change is that in all the cities where modern retail formats have made some presence, the average Indian consumer has given them a big "thumbs up" by and large. Giant and Big Bazaar are some of the more recent examples that are drawing in consumers across a wide swathe of socio-economic classification.

The rapid growth of Big Bazaar (soon to be joined in by expansion of Giant, and a likely entry of Trent/Tata Group later this year in a similar format) testifies this, and in turn, this will lead to many other major business houses in this sector very shortly. The consumer appreciation has not only been limited to the national players.

Speciality players like Loft (footwear retailing), Vijay Sales and Vivek (consumer durable retailing), Fabindia (clothing / accessories) and even local players (e.g. Bombay Selection and Mehrasons in Delhi) have been able to draw consumers from the traditional high streets to new swanky malls and/or modern, large footprint stand-alone stores.

In case of Delhi, we are now already beginning to see emergence of new "Lajpat Nagars" and "Connaught Places" in malls such as DLF City Center and Metropolitan (both in Gurgaon).

Hence, the growth in organised retail is no longer determined only by the growth plans of the existing national players "" new entrants as well as local/regional players making rapid expansion beyond their traditional markets will be actually driving the growth now.

The second significant change is that from the end of 2004 and through almost 2007, India will see the coming to market of new, large shopping malls almost every week. Next year alone is likely to have at least 50 new malls ready for opening, and 2006 seeing opening of as many as 150!

The year 2006 may see another 100 or more ready for possession. This makes entry into retailing far easier for almost all kinds of entrants, for almost all kinds of formats and scale of operations. The rentals are likely to settle down at about Rs 40 "" Rs 60 per sq ft per month making most retail businesses financially very viable.

Scaling up will also be easy for the new entrants once they have got their initial business models right and resources (financial and human) put in place. The easier availability of space will therefore encourage retail start ups in high potential categories such as food and grocery, consumer durables, furniture and furnishings, jewellery etc.

Financial resources themselves would be very easy from 2004 itself. The forthcoming IPO of Shoppers Stop is likely set very encouraging benchmarks for raising capital from the primary markets, and thereby attracting adequate interest of various categories of investors including VCs to look at funding retail ventures at various stages.

The fourth significant change is the likely entrance of many leading international brands/retail businesses in India initially through the franchising route, and subsequently through direct retailing route when the FDI policy on retail is liberalised (hopefully soon after the next general elections).

With the increased attractiveness of India, many top international brands are reportedly poised to make an entry into India this year. These may include Calvin Klein, Tommy Hilfiger, Athlete's Foot, Tiffany, Bvlgari etc.

More are evaluating options, and should make their presence in 2005 and beyond, creating a multiplier effect in various formats and product categories giving further stimulus to growth of organised retailing.

At last, therefore, we can rightly say that Indian retail sector may well see an onset of a revolutionary phase and very rapid growth can be forecast in the immediate future.

Arvind@ksa-technopak.com