Mumbai / New Delhi: Indian retailers are drawing up ambitious expansion plans for 2011 on the back of buoyant consumer sentiment. Their plans involve dominating a specific market or segment and partnering with mall developers for revenue share, according to experts, marking a clear shift from modern retail’s initial years in India, when growth came at the cost of profitability owing to high rents and multiple store formats.
Arvind Singhal, chairman of retail consultancy Technopak Advisors Pvt. Ltd, said retailers are upbeat as shoppers have started loosening their purse strings.
He added that discretionary spending among a quarter of the country’s one billion population is expected to increase anywhere between 25% and 30% in the next year with consumers splurging on everything from jewellery to cars.
“Consumer sentiment going into 2011 is very buoyant,” Singhal said. “Spending on luxury, premium products and on lifestyle is growing much faster (than the gross domestic product).”
This year witnessed the emergence of hypermarkets (large format supermarket stores) as the preferred model for organized convenience retail. It also put to rest the row over the impact of the advent of modern retail on neighbourhood stores. These stores continue to profitably coexist with modern retail stores.
Reliance Retail Ltd, which has small neighbourhood stores (Reliance Fresh) alongside other formats, brought in Gwyn Sundhagul and a team of expatriates from Tesco Lotus, Thailand, as it focused on hypermarkets for growth. Companies such as Trent Ltd, which has Star Bazaar, Aditya Birla Retail Ltd, which runs More, and K Raheja Corp.-promoted HyperCity, which became a subsidiary of Shoppers Stop Ltd, are also looking at the big-box format for growth.
The growing affluence of the middle class has also got retailers moving up the value chain. For instance, Spencer’s Retail Ltd had in the past introduced a range of economically priced, own-label products. The retailer is now planning to substantially increase its lifestyle products portfolio.
“This is the age of wellness,” said Vineet Kapila, president of Spencer’s Retail. “Consumers want to look good, eat good and a lot of our offerings will go in that direction.”
With the return of consumers, retailers such as Kishore Biyani’s Future Group and Reliance Retail have, once again, revised their plans.
During the year, retail real estate supply stood at 5-6 million sq. ft. “Almost triple the supply, estimated at 15-16 million sq. ft is lined up for the next one-two years,” said Anshuman Magazine, chairman and managing director, CB Richard Ellis South Asia Pvt. Ltd, a real estate consulting firm. Moreover, in cities such as Mumbai, 60-70% of the new supply has already been booked by existing national and multinational retailers, he added.
The rush to book well-located and designed property has given them a premium. “Rentals have increased 15-30% for good properties,” said Kumar Rajgopalan, chief executive officer, Retailers Association of India. Any further rise would spell trouble for the retailers.
On the flipside, nearly 20% of total mall space under operation in India was vacant at the end of the September quarter, according to real estate advisory Jones Lang LaSalle. The rentals at these malls fell 50-60% from peak 2007 levels.
The growth imperative is pushing retailers outside the top 20-30 cities. “This will be a second trend in 2011 as most retailers are trying to reach out to the top 50-100 cities,” Singhal said. “Those cities have time and again shown the upsurge in consumption and the customers are ready.”
Retailers will continue to pin their hopes on the government opening up the sector to foreign direct investment (FDI) following a discussion paper by the department of industrial policy and promotion, the visit of US President Barack Obama and lobbying by Wal-Mart Stores Inc.’s chief executive and president Mike Duke.
Earlier this month, Biyani had called for allowing FDI at least in multi-brand retail early next year. “That would be a New Year gift from the government to the retailers,” he said.
Like Biyani, a host of Indian and foreign retailers are hoping for a possible breakthrough in India’s multi-brand retailing policy. “There are at least 15 odd MNCs (multi-national companies) that will come in various formats with some amount of stake once there is a clarity on FDI,” said Rajgopalan.