At today’s prices of real estate, retail isn’t a viable business.
That may not be the most appropriate statement to begin a feature on ‘Retail Wars,’ but when it’s made by Kishore Biyani, a pioneer of organised retail in India, it merits deeper thought. Biyani’s reasoning is simple: “Today most retailers are working on a net margin of 3 per cent. But thanks to spiralling real estate costs, occupation costs are double that figure.”Yet, Biyani will be the first to acknowledge that organised retail is an opportunity that few promoters—particularly the big business houses—can ill-afford to ignore. For all the familiar reasons (sustainable high economic growth, a predominately young population, search for convenience, etc).
That’s why, as per figures put out by consultants Technopak, the retail industry is expected to sink all of $36 billion into various formats by 2013. This would result in an industry with an estimated turnover of $110 billion by 2014.
Sounds optimistic? Perhaps, but a little over a decade after a clutch of players like Pantaloon, Trent and Shoppers’ Stop took their first tentative steps in organised retail, plenty has changed. After years of experimenting with various formats, the serious players are beginning to settle down. And they’re settling down in the categories that matter—basically food & beverages and personal care, which constitute some two-thirds of the market for organised retail. As Raghu Pillai, President & CEO (Retail Operations & Strategy), Reliance Retail, says: “Incremental private consumption will be in the range of $40-60 billion annually. That’s why large players with strong balance sheets are busy putting their stakes on the ground to seize this developing opportunity.” Adds Biyani: “We are now in phase II of the retail story, when companies have figured out (or are close to figuring out) what works and what doesn’t. The moves of the larger players with strong balance sheets could well deter the smaller players from proceeding.”
Indeed, as the stories that follow will indicate, the real asset creation is just beginning—or at least the big conglomerates have indicated their eagerness to do so.
After putting up some 572 Reliance Fresh Stores over some 1.5 million sq. ft, Reliance Retail wants to go the whole hog in hypermarkets—by July it will have hypermarkets over some 1 million sq. ft (currently it has just 3 such formats over just some 3 lakh sq. ft). Tata company Trent says it has 23 properties signed up for hypermarkets (it currently has just three, and is readying to launch a fourth). Aditya Birla Retail is talking about 100 hypermarkets over the next few years. And Kishore Biyani, who opened his first Big Bazaar in 2003, has so far 90 such formats on the ground.
As Pillai puts it: “To be a significant player with scale in organised retail, one has to be in foods & grocery. You can’t be a multi-billion-dollar player if you have a presence only in garments.” However, it’s not as if these largescale formats will mushroom overnight. In fact, spiralling real estate costs (and rentals), despite an ongoing correction, coupled with the higher cost of doing business, may just compel a few to go slow.
But clearly for the big boys there’s no going back from here. The billion-dollar question, of course, is: Will all of them be able to co-exist over the longer term?