Chains to reap 35% of India retail: Wal-Mart

Wal-Mart Stores said 35 per cent of retail sales in India will be made through store chains by 2015, up from 2 per cent now, as the world's biggest retailer prepares to enter the South Asian nation's $300 billion market.

"The increase for organised retailing will depend on the amount of investments made and government policies,'' Raj Jain, president of emerging markets at Wal-Mart's international unit, said. The world's second-biggest company by sales last month agreed to form an equal wholesale venture with the Bharti Group that will connect suppliers and retailers, with the Indian company owning the stores.

Wal-Mart is betting retail sales in the second-most populous country will total about $500 billion within nine years, Jain said. The Bentonville, Arkansas-based company is pushing the government to lift restrictions on overseas retailers, allowing it to gain a bigger slice of an expanding market.

"They are getting the back-end ready so that when the government allows them to open stores, the time to market is minimized,'' said Jayesh Shroff, a fund manager with Mumbai-based SBI Funds Management, which has $3.5 billion in assets.

In China, Wal-Mart has 68 stores and 36,000 employees. In 2004, it bought $18 billion worth of Chinese goods, such as shoes and furniture, for sale abroad.

Wal-Mart plans to directly source as much as $630 million of goods from India in 2006, 50 percent more than it bought the previous year, Jain said. More purchases from the South Asian nation may help the retailer convince the Indian government to lift restrictions on overseas retailers, including Carrefour SA and Tesco Plc, lobbying to be allowed to open their own stores.

"We will connect the 12 million mom-and-pop stores in India to the mom-and-pop suppliers and farmers in the country,'' Jain said. "Producers in India get low prices and customers have to pay more because of inefficiencies in the supply chain.''

Setting up the supply chain, which is expected to be ready in 18 months, may prepare suppliers to deal with Wal-Mart's own stores in India when restrictions are eased.

"For any retail foray, the supply chain management is key,'' SBI Funds Management's Shroff said. "For Wal-Mart, it's a long-term strategy. In the next one or two years, they plan to get their supply chain right and test the Indian market with the wholesale business.''

Retailers such as Wal-Mart are eyeing the Indian market, which was ranked as the most attractive among emerging markets in 2006, according to consulting firm AT Kearney Inc.'s Global Retail Development Index.Wal-Mart plans to sign a final agreement with Bharti for the supply chain and wholesaling venture in the next four weeks, Jain said. ``The details are under negotiation,'' he said.

Wal-Mart's partnership with Sunil Mittal's Bharti Group seeks to overcome regulations that restrict overseas investments to those made by single-brand merchants.

India is in discussions with Wal-Mart, Carrefour and London-based Tesco to develop a foreign investment policy, Commerce and Industry Minister Kamal Nath said on September 18.

Economic expansion and greater disposable incomes in the hands of the burgeoning middle class in the South Asian nation are making the country an attractive destination for overseas retailers. Consultant McKinsey & Co. estimates there will be 351 million middle-income Indians in 65 million households by 2010, up from 40 million households now.

Annual growth in India's economy averaged 8.2 percent in the past three years, making it the second-fastest growing major economy after China. India's government has forecast an 8.5 per cent economic expansion in the year to March 31.

The U.S. retailer set up its procurement office in the southern city of Bangalore in 2001. The retailer purchases goods such as textiles, apparel, jewelry and houseware from India. It also buys products through importers.

Wal-Mart, which has said it aims to get a third of sales and profit growth from outside the US, has more than 6,600 stores in countries including the US, China, Japan, Mexico, Canada and Brazil.

Retail chains in India are banking on lower prices and a wider range of choices to win business.Including individually owned neighborhood stores, the local retail industry will more than double to $637 billion in 2015 from $300 billion this year, according to New Delhi-based consulting firm Technopak Advisors' estimate.

Retailers in India are trying to tap a market where sales through store chains are forecast to rise 15-fold to $60 billion by 2015, according to estimates by Morgan Stanley.