News: Wal-Mart, DLF mull venture

(BS 18/07/2006) New Delhi - Model to be similar to DLF's foray into hospitality.

Wal-Mart is in talks to appoint DLF Ltd as its franchisee in India. The stores could be located in DLF’s malls or be stand-alone structures. DLF plans to develop over 100 malls in 60 cities over the next four to five years.

While the retail outlets will be owned by DLF, back-end distribution and logistics will be taken care of by Wal-Mart, DLF sources told Business Standard. Wal-Mart is yet to set up a company in India to undertake such activities.

Existing government regulations allow foreign investment of up to 51 per cent in only single-brand retail ventures. Thus, Wal-Mart cannot set up retail outlets in the country on its own.

“This leaves only two options for multi-branded big-box retail formats like Wal-Mart’s. It can opt for either a franchise model with an Indian partner, or a cash and carry format like Metro,” said Asitava Sen, principal consultant, PricewaterhouseCoopers.

Though the Indian market is still closed to large retailers like Wal-Mart, several studies have pointed out that it is an attractive market where the first mover’s advantage could be crucial.

According to KSA Technopak, the retail market was worth $205 billion in 2004, and only three per cent of it was organised. The figure is expected to reach nine per cent by 2010.

Wal-Mart is known to have identified China and India as markets that will drive its growth in the future.

The model for Wal-Mart’s proposed venture with DLF will be similar to the one for the latter’s foray into hospitality, where the realty company will own and develop property, and its joint venture partner, a hotel chain, will take care of the management. Other Indian companies like Bharti are also in talks with Wal-Mart for the Indian market.