Retail Roundup

Late in 2006, Reliance Industries Ltd, India’s largest company by market value, started India’s most ambitious retail venture. The company, through its subsidiary Reliance Retail Ltd, planned to open around 3,000 outlets of its grocery outlet Reliance Fresh in addition to hundreds of stores of various other formats, ranging from health and wellness to jewellery, by 2011.
On its heels, Chennai-based midsized discount retailer Subhiksha Trading Services Ltd expanded outside its home turf into the country’s north and west and flooded the market with hundreds of outlets in what the company termed a “carpet-bombing” strategy.Two years into the business, Reliance Retail has about 800 outlets and is planning to shut, resize or restructure about 200 non-profitable stores.Subhiksha has closed several stores amid accusations by vendors and staff that it had been withholding payments and salaries for months.Indiabulls Financial Services Ltd, which acquired Piramyd Retail Ltd a year ago and renamed it Indiabulls Retail Services Ltd, had closed four of the nine hypermarkets in New Delhi and Ahmedabad and fired hundreds of employees amid mounting losses. Indiabulls Retail Services has lost at least 90% of its stock value since January.HyperCity Retail Pvt. Ltd had abandoned plans to open about 250 convenience stores by 2012, while 6Ten, the grocery discount chain of basmati exporter REI Agro Ltd, had closed dozens of stores and fired employees.Future Group’s Pantaloon Retail (India) Ltd, which runs the Big Bazaar chain of discount stores, is perhaps the only company which has bucked the trend. Pantaloon’s revenue jumped 52% to Rs5,052 crore for the financial year ended June, while net profit was up by 5.1% (year-on-year) at Rs126 crore. Brokerage firm Angel Broking Ltd expects Pantaloon to post at least 30% growth in sales and at least 40% in net profit in the next two years.
The situation was unthinkable earlier this year, with modern retail being touted by many as India’s next sunrise sector after information technology and telecom. In a 2007 study, think tank McKinsey Global Institute had predicted that consumer spending in the country, powered by the middle class, would quadruple from about Rs17 trillion in 2005 to Rs70 trillion in 2025.
However, rising inflation, peaking at 12.9% in August, forced this middle class to tighten its purse strings as people looked for cheaper bargains. Consumer sentiment was further dampened by bomb blasts in different cities, including Jaipur, Ahmedabad and Delhi, over the past eight months. People kept away from the malls and major shopping areas where most of the branded stores are located. After the terror attacks in Mumbai on 26 November, retailers do not expect customers to come back anytime soon.
The economic slowdown coupled with retailers’ other woes has stunted the overall growth of the modern retail business this year. Job losses, especially in the information technology sector which boasts of high-end spenders, will certainly affect consumer spending at high-end stores. Market watchers had predicted the country’s modern retail business would clock about 35% year-on-year growth. However, it will only manage to grow by 15% this year, according to Gibson Vedamani, chairman of Retailers Association of India. Spiralling rentals added to retailer woes—rents constituted 10% of sales against the global average of 3-4%, according to Angel Broking.Reliance Retail recently pruned the size of its hypermarket in Jamnagar, Gujarat, from 165,000 sq. ft to about 100,000 sq. ft. Similarly, Shoe Factory, a joint venture between Pantaloon and Liberty Shoes Ltd, which runs a chain of 18 footwear stores, has reduced the size of 10 (of its 18) stores from 10,000 sq. ft to about 2,000 sq. ft and rented out the space to other retailers in the past few months.Pantaloon has also closed some unprofitable Big Bazaar hypermarkets. Vishal Retail has stopped taking space on rent. The company is taking the franchisee route for all new stores to bring down establishment costs.In addition to this, retailers are now looking at longer credit periods from their vendors. With the focus shifting from revenue growth to protecting margins, pruning staff is another strategy.It remains to be seen whether the cut in excise duties announced by the government on 7 December will boost consumer spending.