Retail grows to $560-bn in 2014; FDI hopes hang in balance –

While the new government's FDI position has been on the expected lines, the retailers expect a stable government to boost the economy.

Chasing the magic figure of USD one trillion, retail industry has managed to cross the halfway-mark this year, even as the traditional brick- and-mortar retailers face a new challenge from online players while entry of Walmarts of the world hangs in balance.

Since a Bharatiya Janata Party (BJP)-led new government came to the power in May 2014, the hope of FDI being allowed in the multi-brand retailer has taken a backseat, forcing multinational supermarket operators like Walmart to stay away, while French major Carrefour has gone a step further by shutting down its wholesale stores and exiting India.

While the previous UPA government had allowed up to 51 per cent FDI in multi-brand retail, no foreign retailer apart from Tesco had approached the government for permission to set up stores to sell multiple brands under one roof.

Reflecting on the year passing by, Retailers Association of India CEO Kumar Rajagopalan said: “This was a year of new challenges, new government and cautious optimism. BJP, even before election, had made its position on FDI in multi-brand retail clear.”

While the new government’s FDI position has been on the expected lines, the retailers expect a stable government to boost the economy, which in turn will help retailers, he added.

Industry estimates pegged the size of retail sector at USD 560 billion this year, growing by 10 per cent compared with last year. As per various estimates, the industry is now expected to reach USD one trillion mark by 2020, while this target was being eyed much earlier on hopes of FDI.

For the world’s biggest retailer Walmart, it was a matter of adjusting to the circumstances in the short and medium term and bide time to tap India’s retail potential in the long term.

“We see the potential of the country and we have a long term view. At the moment we are focused on cash and carry business under our Best Price brand,” Walmart President and CEO Doug McMillon stated while announcing the company’s plans to focus only on cash and carry in India.

Expressing the company’s desire to operate multi-brand stores in India he said when would it happen would depend on “people of India and the government of India with regard to the regulations for foreign direct investment.”

“We will respectfully wait, answer all questions and try to demonstrate that having Walmart in India is a good thing for the country,” McMillon added.

On the other hand, frustrated with lack of clarity on regulations for foreign retailers for multi-brand retail trade, in September, Carrefour — the second-largest retailer in the world — exited from India by closing its five cash and carry stores.

Carrefour, which had been operating in India since 2010 with wholesale business, had stores in Delhi, Jaipur, Agra, Meerut and Bangalore. It was hoping for a relaxation in FDI in the multi-brand retail trade.

UK-based Tesco is the only foreign retailer present in the multi-brand retail segment now. It entered the country in a joint venture with Tata Group’s Trent Hypermarket with an initial investment of USD 110 million.

Domestic players including Reliance Retail and Future Retail began expansion of their store networks this year after rationalising their operations in the last two years.

In January, Reliance Retail managed to turn around its business and reported its first-ever pre-tax profit of Rs 106 crore. It also announced plans to foray into unexplored markets and tap the potential of e-commerce channel.

“Continued expansion is the way ahead. The roadmap is clear — it will be achieved by growing in existing markets and foraying into unexplored markets,” the company said.

Future Group’s Future Consumer Enterprise Ltd, the food and FMCG arm of Kishore Biyani-led Future Group, acquired south India-based convenience store chain Nilgiris for nearly Rs 300 crore after chasing the company for more than year.

With online shopping booming, the traditional retail players also began venturing in to the e-commerce space. A the same time, heavy discounts offered by e-commerce players impacted the traditional retailers’ sales and margins.

Even bigger retailer like Future Group, which runs Big Bazaar retail chain, felt the heat and complained of unfair practise.

Kishore Biyani of Future Group complained about e-commerce companies, particularly Flipkart, under-cutting the market and selling products at even below the cost price.

Still, Future Group announced tie-up with the US online retail major Amazon to sell its products and to build on synergies of experience in online and offline businesses.

The partnership will initially focus on Future Group’s fashion brands and will subsequently cover all categories.

Other big retailers, including Reliance Retail, are also working on improving their online presence.

“The potential of e-commerce combined with the network of physical store locations will offer tremendous choice and convenience at a great value to the consumer,” Reliance Retail has said.

Explaining about the rationale for retailers gearing up for a strong online presence, Rajagopalan said: “This year, retailers realised that e-commerce can be big. Many retailers are now looking at multi-channel retail strategy.”

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