News: Indian mall mania
(TNN 05/01/2007) New Delhi - The domestic retail industry is wearing new clothes. A revolution is set to sweep across the country in the next three-to-five years, as traditional markets make way for departmental stores, hypermarkets and western-style malls.
While penetration of organised retail in India remains slightly below 4%, domestic major retail players have announced aggressive expansion plans even as a plethora of new flashy malls are mushrooming in metros and second-rung cities.
Three ‘big bang’ initiatives are shaking up the retail sector: Reliance Industries’ Rs 25,000-crore mega plan to create 100 million square feet of retail space and a sales target of Rs 100,000 crore by 2011, Aditya Birla Group’s Rs 15,000-crore retail foray and retail giant Wal-Mart’s entry via a joint venture with Bharti.
Dreams unlimited
Existing retail players are also gearing up rapidly to India’s retail opportunity, finds the ET Retail Survey. Pantaloon plans to have an operational retail space of 30 million sq ft by FY10 and is confident of reaching a run rate of Rs 2,500 crore in June 2010.
Shoppers’ Stop is looking at a retail space of 5-6 million sq ft by FY10, while Trent is confident of taking its retail space from the current 600,000 sq ft to 1.5-2 million sq feet by FY10. Similarly, RPG group, Provogue, Brand House (S Kumars), and Max Retail are rolling out ambitious plans across India’s metros, tier 1 and tier 2 cities.
The organised retail industry is estimated at over $7 billion, and is slated to grow to $30 billion over the next four years. There’s a reason for this retail rush. In the retail sector, the turnover is two times of assets.
Even with net profit margins of only 4%, the return on investment is 16-18%. Besides, India’s vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets.
“The current state of the Indian retail sector is primitive compared to the rest of the world. Modernisation of this sector represents a significant opportunity for Indian entrepreneurs,” says Arvind Singhal, chairman, Technopak Advisors, a retail consultancy firm. Of course, there are challenges ahead, like rentals, manpower, supply-chain and back-end organisation. Indian retailing is clearly today at a tipping point.
Head hunting
While there may be droves of young people applying for a spot behind the register, without any tradition of large retail stores in India, there is a paucity of experienced manpower available for mid-management positions. “Meeting suitable manpower requirements and managing human resources in the future will become a challenge as competition hots up,” points out Anshuman Singh, CEO value fashion Future Group.
Most retail players have already taken steps to bridge the gap. “We are tying up with universities to recruit younger people,” says Tarun Joshi, CEO, Brand House Retail, a subsidiary of S Kumars Nationwide. Clearly manpower-related issues are a major concern for retail players. Says Spencers (RPG group) business head, Rajesh Shetty, “Conducting training programmes is also key.”
At a senior level, recruiting people with significant retail experience might not prove an easy task either. “Indian retail players’ ability to attract people from abroad for senior level positions will be critical,” points out Mr Singhal.
Crack the space jam
With some 350-odd malls expected to come up in the next three years, availability of retail space is another major area of concern. Technopak Advisors pegs the gap between supply and demand of retail space at a staggering 400 million square feet.
Given the fact that large pockets of land are more easily available in smaller towns than in the metros, players such as Reliance have announced major retail forays in tier 2 towns. Other players such as Pantaloon and Spencers have already built up significant presence in tier 2 cities. “Tier 2 and 3 cities will be the major growth drivers,” feels Mr Singh.
However, while tier 2 cities represent an immense opportunity, infrastructure remains a major issue. “Building a distribution network to service these areas well will be a considerable challenge,” says Provogue managing director Nikhil Chaturvedi.
There are other problems peculiar to the industry. “There is a lack of storage equipment such as racks, fixtures, and shelves. Some of them are still being imported from abroad,” points out Mr Shetty.
Support systems
Infrastructure problems are not restricted to tier 2 and 3 towns alone. “Logistics, which is a very fragmented market today, is going through a consolidation phase. There is going to be a major change,” says Chintan Tyagi, general manager, IBM business consulting services.
Significant investment in restructuring of the supply chain management is needed. Reliance has already set up its own logistics company by making heavy capital investment. However, there are others, such as Pantaloon, which are still working with third parties and focusing primarily on the demand size.
“Foreign retail players will also bring in some of their own practices to India,” adds Mr Tyagi. According to a recent report by Enam Securities, cutting the number of intermediaries between the farmer and the retailer could reduce costs by almost 7%.
“India is, however, the only country where the cost of intermediation is still relatively low,” points out Subhiksha Trading Services senior president Atul Joshi. An investment of Rs 5,000 crore will be needed to restructure the supply chain.
Big-ticket investments was the one missing link in the retail story. That’s history now as large groups are ready to fork out big bucks. Their entry is likely to focus attention on the industry, especially on the back-end, which is sorely lacking now. The ride ahead may not be very smooth, but will be an exciting one for sure, and the fittest will survive.
While penetration of organised retail in India remains slightly below 4%, domestic major retail players have announced aggressive expansion plans even as a plethora of new flashy malls are mushrooming in metros and second-rung cities.
Three ‘big bang’ initiatives are shaking up the retail sector: Reliance Industries’ Rs 25,000-crore mega plan to create 100 million square feet of retail space and a sales target of Rs 100,000 crore by 2011, Aditya Birla Group’s Rs 15,000-crore retail foray and retail giant Wal-Mart’s entry via a joint venture with Bharti.
Dreams unlimited
Existing retail players are also gearing up rapidly to India’s retail opportunity, finds the ET Retail Survey. Pantaloon plans to have an operational retail space of 30 million sq ft by FY10 and is confident of reaching a run rate of Rs 2,500 crore in June 2010.
Shoppers’ Stop is looking at a retail space of 5-6 million sq ft by FY10, while Trent is confident of taking its retail space from the current 600,000 sq ft to 1.5-2 million sq feet by FY10. Similarly, RPG group, Provogue, Brand House (S Kumars), and Max Retail are rolling out ambitious plans across India’s metros, tier 1 and tier 2 cities.
The organised retail industry is estimated at over $7 billion, and is slated to grow to $30 billion over the next four years. There’s a reason for this retail rush. In the retail sector, the turnover is two times of assets.
Even with net profit margins of only 4%, the return on investment is 16-18%. Besides, India’s vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets.
“The current state of the Indian retail sector is primitive compared to the rest of the world. Modernisation of this sector represents a significant opportunity for Indian entrepreneurs,” says Arvind Singhal, chairman, Technopak Advisors, a retail consultancy firm. Of course, there are challenges ahead, like rentals, manpower, supply-chain and back-end organisation. Indian retailing is clearly today at a tipping point.
Head hunting
While there may be droves of young people applying for a spot behind the register, without any tradition of large retail stores in India, there is a paucity of experienced manpower available for mid-management positions. “Meeting suitable manpower requirements and managing human resources in the future will become a challenge as competition hots up,” points out Anshuman Singh, CEO value fashion Future Group.
Most retail players have already taken steps to bridge the gap. “We are tying up with universities to recruit younger people,” says Tarun Joshi, CEO, Brand House Retail, a subsidiary of S Kumars Nationwide. Clearly manpower-related issues are a major concern for retail players. Says Spencers (RPG group) business head, Rajesh Shetty, “Conducting training programmes is also key.”
At a senior level, recruiting people with significant retail experience might not prove an easy task either. “Indian retail players’ ability to attract people from abroad for senior level positions will be critical,” points out Mr Singhal.
Crack the space jam
With some 350-odd malls expected to come up in the next three years, availability of retail space is another major area of concern. Technopak Advisors pegs the gap between supply and demand of retail space at a staggering 400 million square feet.
Given the fact that large pockets of land are more easily available in smaller towns than in the metros, players such as Reliance have announced major retail forays in tier 2 towns. Other players such as Pantaloon and Spencers have already built up significant presence in tier 2 cities. “Tier 2 and 3 cities will be the major growth drivers,” feels Mr Singh.
However, while tier 2 cities represent an immense opportunity, infrastructure remains a major issue. “Building a distribution network to service these areas well will be a considerable challenge,” says Provogue managing director Nikhil Chaturvedi.
There are other problems peculiar to the industry. “There is a lack of storage equipment such as racks, fixtures, and shelves. Some of them are still being imported from abroad,” points out Mr Shetty.
Support systems
Infrastructure problems are not restricted to tier 2 and 3 towns alone. “Logistics, which is a very fragmented market today, is going through a consolidation phase. There is going to be a major change,” says Chintan Tyagi, general manager, IBM business consulting services.
Significant investment in restructuring of the supply chain management is needed. Reliance has already set up its own logistics company by making heavy capital investment. However, there are others, such as Pantaloon, which are still working with third parties and focusing primarily on the demand size.
“Foreign retail players will also bring in some of their own practices to India,” adds Mr Tyagi. According to a recent report by Enam Securities, cutting the number of intermediaries between the farmer and the retailer could reduce costs by almost 7%.
“India is, however, the only country where the cost of intermediation is still relatively low,” points out Subhiksha Trading Services senior president Atul Joshi. An investment of Rs 5,000 crore will be needed to restructure the supply chain.
Big-ticket investments was the one missing link in the retail story. That’s history now as large groups are ready to fork out big bucks. Their entry is likely to focus attention on the industry, especially on the back-end, which is sorely lacking now. The ride ahead may not be very smooth, but will be an exciting one for sure, and the fittest will survive.
posted by InCar Group Press Room at 15:06
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