The Hindu Business Line : When organised retail came into its own

ORGANISED retailing got a leg up during 2004 with the opening of new format stores, rapid growth of existing players, start-up of new-generation shopping malls, the Government's intention of allowing a certain level of foreign direct investment in retail and the formation of a retailers' association. With consumer sentiment positive during most of 2004, it led to substantial spending across a number of categories such as consumer durables, clothing and lifestyle, automobiles and telecom products.

Mr Kishore Biyani of Pantaloons launched his new-format shopping mall called Central, Trent opened the first Star India Bazaar while new-generation shopping malls such as InOrbit in Mumbai and Forum in Bangalore opened their doors. The year also saw a rapid scaling up of operations by players such as Pantaloon and Big Bazaar, Shoppers' Stop, Lifestyle, Westside and RPG's Spencer's.

Said Mr Arvind Singhal, Managing Director, KSA Technopak India Pvt. Ltd: "Rapid growth and apparent success of Pantaloon / Big Bazaar has given a big impetus to the overall prospects of organised retailing in India. Outstanding performance of the Pantaloon and Trent stocks relative to the BSE Sensex is also a very positive development since it will increase flow of investment to this sector." Adds Mr Gibson Vedamani, CEO, Retailers Association of India (RAI): "Organised retailing saw a significant high in 2004 with many organised retailers' turnover growing by leaps and bounds and operations expanding through many new stores. Retailing space increased by over 40 per cent in 2004 as against last year."

Mr B.S. Nagesh, CEO, Shoppers' Stop, believes Year 2004 was quite eventful for retail. "Retailing got noticed and recognised," he said. During the first quarter of the year the BJP Government announced a 26 per cent FDI as part of its agenda. Also, the Minister of Commerce, Mr Kamal Nath, suggested that certain product categories could be opened up to FDI, which was a positive sign. This year, he added, also witnessed an evident change in terms of large export houses entering retailing.

Mr R. Subramanian, Managing Director of discount retail chain Subhiksha, said 2004 had been a good year not so much in terms of what all happened for retail but more in terms of the visibility and profile that it has achieved and also in terms of setting the expectations of fast growth. Also, the automobile boom continuing is welcome, he added, because the ability and willingness of people to travel is what made retail boom in many countries. "The Indian retail boom was constrained by scarcity of properties as well as lack of products — increased competition from free imports has made product availability a non-issue," he said.

Raghu Pillai, President, Retail, RPG Enterprises, said the year saw the FoodWorld chain of supermarkets take some effective supply chain initiatives. The roll-out of the Spencer's chain of hypermarkets, slow till now, would see more aggressiveness, he said.

However, on the flip side, practically no progress was achieved in getting industry status for retail. And, as KSA's Mr Singhal points out, contrary to some expectations, availability of additional, quality retail space has not improved; the rentals have actually hardened. "This is acting as somewhat of a dampener in the growth of organised retailing. Likewise, despite many new malls coming to market in select cities, their quality and the amenities, including parking, have left much to be desired," said Mr Singhal.

Also, real estate supply was expected to exceed demand. Hence retailers expected availability of space at good prices but this did not happen - only about 20 malls became operational in 2004 and cost did not drop a great deal, added Mr Vedamani of RAI. KSA's Mr Singhal adds that malls have a long gestation period of two-three years and several are in the planning stages. "The next four-five years should see 40-50 malls coming up each year. The good thing is that large corporates too are looking at adding retail space."

However, a sore point for the industry has been inflexible labour laws as Shoppers' Mr Nagesh points out. The industry has been trying to persuade the Labour Ministry to suitably amend the labour laws. Though seven days' working has been permitted in a few cities such as Bangalore, Kolkata, Delhi and Mumbai, laws have to be more elastic, he said. "Flexible labour laws will allow retailers to operate their outlets in two shifts, which could lead to more employment. However, there has to be a balance between benefits extended to employees and the cost borne by the retailers in employing them," he added.

Like 1991 when Indian economy witnessed a change in India, 1998 was the year of inception of organised retailing, said Mr Nagesh. That year Shoppers' Stop opened two outlets and RPG's Giant hypermarket (now called Spencer's) followed. However, Year 2004 was when retail began to scale up. It will be yardstick for further growth in retail sector, he added.

The next 3-5 years will be more years of growth — with lots of capital coming in, it's too early to focus on consolidation now. "With the economy growing and some of the metros growing at a decent clip one expects more a growth story than a consolidation play," says Subramanian of Subhiksha.