The Hindu Business Line : A lacklustre year for retail industry

New Delhi, Dec. 24 The anticipated growth in the retail sector has been marred by slow mall developments and lack of credit availability and general slowdown in the economy. Touted as the next success story, the Indian retail sector, which was presumed to grow at over 35 per cent, is showing signs of slowing down.

Retailers too are feeling the heat with sectors reporting margin erosion and slump in footfalls. For many companies, retail was the last mile to be achieved, yet many players who had evinced keen interest in entering the sector have been moving ahead with caution.

A large number of players who had announced grand expansion plans slammed the brake on expansion. The sector which attracted players like Marks & Spencer, Bharti, DLF, Reliance and Tata into its fold also saw little M& A activity and fewer HR movement in the year gone by.

Several players, including market leaders like the Future Group and RPG-led Spencer’s, are said to have put a brake on expansions given the current slowdown in the market. Discount retailer Subhiksha too is in the throes of a restructuring.

New entrants like IndiaBulls, which acquired Piramyd Retail, are learning the ropes. Foreign entrants like Wal-Mart and Carrefour are still inching ahead though with little progress.

Issues regarding foreign direct investments are still coming in the way of these global giants from setting up shop in India. Currently, 51 per cent FDI is allowed in only single brand retailing.

Study on impact

The year also saw the Indian Council for Research on International Relations (ICRIER) releasing a key report on the Indian retailscape. The study, which was commissioned by the Government to glean the impact of organised retail on mom-and pop stores, observed that the impact of big retail chains on smaller retailers will be minimal in the long run on an absolute basis. The report was released in May this year.

Industry estimates predict that the overall size of the retail sector in India is expected to touch $ 427 billion by 2010 and $ 637 billion by 2015 with the organised segment expected to account for 22 per cent by 2010, up from the present four per cent. According to industry watchers there has not been much progress on further relaxation of the policy on foreign direct investment in the retail sector.

The year began with telecom giant Bharti Enterprises announcing a roadmap for its retail business. Bharti, which has tied up with Wal-Mart for back-end operations, will invest US $ 2-2.5 billion by 2015.

Marks and Spencer joined hands with Reliance Retail for its India foray. But, French retailer Carrefour did not make much headway into its plans. The retailer is understood to be seeking a partner for its India foray by 2009. Sun Glass Hut and Hamley too made their debut in the Indian market.

Reliance

The Mukesh Ambani-led Reliance Retail is moving ahead with gusto with a slew of specialty stores including in furnishing, stationery, jewellery and footwear. The group had pledged an investment of Rs 25,000 crore till 2010-11 for its expansion. However, reports say that Reliance Retail too is struggling to cope with the slowdown. The organised retail sector had its share of road blocks with major chains facing protest from small retailers in Uttar Pradesh, West Bengal, Tamil Nadu and Orissa. In Uttar Pradesh, the state government asked Reliance and RPG’s Spencer’s to close outlets and set up a panel to study the impact of organised retail on local traders.

Food and grocery was the most sought after with almost all players wanting a slice of the ‘kirana’ pie. Recession proof categories such as food and grocery and cosmetics attracted new entrants such as Dabur and Bharti with their formats ‘New U’ and ‘EasyDay’ respectively.

The franchise route remained the most attractive form of expansion. The retail rentals also witnessed a sharp decline after the second quarter and many leading players were renegotiating their lease agreements. Many players were also expanding to tier 2 and 3 cities besides intensifying the linkages with farmers for supply of freshly grown produce. Reliance Fresh and Adani Agrifresh were pioneers in kick-starting the process.