The Hindu Business Line : Retail growth made for top-drawer stuff

NEVER did the retailing sector make the headlines as much as it did in 2005. In a year when retail was unanimously dubbed as India's next sunrise sector, the country's top retailers announced ambitious expansion plans, formed strategic alliances, acquired smaller chains and ventured into new formats.

As if enough were not happening on the domestic front, India came under the radar of several international retailers looking to expand their global presence, causing the debate on the contentious issue of FDI in retail to take centre-stage. With enough to keep the retail buzz going, it was little wonder that retail stocks remained in fancy in the stock markets. Shoppers' Stop, Provogue and Piramyd Retail took their companies public during the year.

In expansion mode

A combination of increasing availability of quality retail space and the consumers' insatiable appetite for modern retail shopping environment triggered off expansion on a massive scale. Coming off a year of impressive performance when sales registered double digit growth rates, leading retailers such as Pantaloon, Shoppers' Stop and Trent announced plans to aggressively ramp up their retail presence. The likes of Nilgiris, Subhiksha and Food World, who had restricted their focus to the South, began to increase their presence in the North as well.

In the rush to tie-up retail space, it was the smaller cities and towns that opened up for retailers in a big way, with modern retail beginning to appeal to shoppers in these cities as well. Pantaloon set up stores in towns such as Sangli and Durgapur and has mapped out 110 cities and towns where it hopes to take its Big Bazaar format. Other retailers, too, have plans to open up more stores in cities such as Pune, Nasik, Indore, Lucknow and Bhubaneshwar to name a few.

Deal-making at a high

2005 was a significant year for deals and alliances in Indian retail. In a bid to expand into new formats and offer a wider range of product categories, retailers actively scouted for joint-venture opportunities. Pantaloon Retail was active on this front, entering into strategic alliances with Planet Sports, Liberty Shoes and Unitech Enterprises to expand its range of premium offerings, footwear and home solutions products. It also took a stake in Galaxy Entertainment to provide entertainment solutions.

Not too far behind was Trent's acquisition of gifts and books chain, Landmark. Interestingly, this deal closely followed the acquisition of another chain, Odyssey, by Deccan Chronicle Holdings. Shoppers' Stop, in the meantime, won exclusive rights to bring UK's Mother Care stores to India. On the flip side, the long-standing joint venture between RPG and Dairy Farm came to an end. RPG subsequently embarked on a re-branding exercise, whereby it renamed stores owned by it as Spencer's while the FoodWorld brand has been retained by Dairy Farm.

Experimenting with formats

In terms of formats, hypermarkets or big-box, volume-based discount stores continued to be popular with retailers. Shoppers' Stop would soon be opening its own hypermarket, even as its competitors continue to expand. Retailers also perceived specialty stores as an attractive proposition. While several specialty malls are coming up, particularly in Gurgaon, Pantaloon and Shoppers' Stop have both opened home stores. Provogue recently announced its foray into footwear retailing. Archies, which has been dormant in the retailing scene, has announced plans to open a chain of stores that would sell fashion accessories and premium gifts.

For domestic retailers, 2005 appears to have been a year of now or never, as the threat of competition from foreign players loomed large. The arrival of the Indian consumer was not lost on international retailers. High-profile visits from head honchos of Wal-Mart and Tesco was proof that these retail giants were looking at India as a serious market. It also drew diverse views from retailers, economists and policymakers on whether India should open its retail market to foreign investment.

Many arguments have been made in favour of FDI that include large investments in supply chain and higher sourcing from domestic manufacturers. The possibility that the entry of foreign retailers would have an adverse impact on the huge labour force that the retailing sector employs has, however, been a major deterrent for allowing FDI.

Even as the debate raged on, foreign retailers continued to enhance their presence in India. Louis Vuitton, Hugo Boss, Chanel, Rado, Tag Heuer are among the prominent luxury brands present in India through the franchise route. Benetton, which also has a manufacturing facility, said it would double the number of its outlets and increase its sourcing from India.

It has been an eventful year for domestic retailers. 2006 could prove a watershed year in that it could decisively show whether Indian retailers could take on the global giants.