New Delhi: Metro AG, Germany’s biggest retailer, plans to open as many as 50 wholesale stores in the next five years in India, matching the pace of the company’s expansion in China, the world’s fastest-growing major economy.
India, along with China and Russia, will be one of the top three markets for the German retailer in the coming years, Eckhard Cordes, chief executive of Metro, said in an interview in New Delhi on Wednesday. He was on a two-day visit to the South Asian nation.
Market potential:Metro’s chief executive Eckhard Cordes. Metro’s India plans are comparable to its expansion drive in China where it plans to add 50 more stores in the next five years.
Metro, which has six wholesale stores in India since it became the first overseas retailer to open such a store in 2003, is expanding in the world’s second fastest growing economy as it seeks to cut its dependence on its home market, where sales have stagnated in the past decade. Metro’s plans to open wholesale stores in India, where local rules bar foreign companies from opening multi-brand retail stores, comes amid similar plans by overseas rivals and home-grown retailers. Wal-Mart Stores Inc., the world’s biggest retailer, plans to open as many as 12 wholesale stores in the country in 2011.
“Our target of 50 stores by 2015 won’t be the end, we definitely see a potential of three-digit number for our stores here,” Cordes said without specifying the actual target or the time frame. “I think the market potential for cash-and-carry business in India, if you do it right, is huge.”
India has potential for a large number of wholesale, also known as cash-and-carry, stores as the country has an estimated 12 million mom-and-pop outlets that the modern wholesalers can cater to. Wholesale stores in India can sell their goods only to retailers and other establishments such as hotels and restaurants.
“Not only retailers, there is also a growing institutional businesses such as hotels, restaurants, caterers, it’s certainly viable,” says Asitava Sen, director of corporate advisory at consulting firm Apco Worldwide Inc.
Metro’s India plans are comparable to its expansion drive in China where it plans to add 50 more stores in the next five years to its current tally of 50 outlets. The stores in China will be a combination of wholesale and consumer electronics outlets called Media Saturn. Metro opened its first Media Saturn store in Shanghai in November.
Bigger rival Wal-Mart has already opened five wholesale stores in India, after its first store came up in Amritsar in May 2009. Cordes admitted that the German retailer has been “very slow” in expanding stores in India.
“The reason is that the first years we have not been able to put in a successful (model) due to several reasons,” he said. “Then the financial crisis came and we scaled down our investments globally.”
Cordes is visiting India for the first time after taking over the top job at Metro three years ago. He has visited the nation several times before as the head of Daimler-Benz AG, the maker of Mercedes-Benz cars.
Late last year, Metro opened its first so-called concept store in Hyderabad. The store is about 3,800 sq. m in size and is 30% smaller compared with its other outlets in India.
Metro has, so far, invested about €100 million (Rs 619 crore) in the past eight years to open six stores. The investment on each store will fall as the company opens the smaller concept stores in the coming years, Cordes said. “We are now been able to scale down investment per store due to the new concept.”
Metro and many other companies scaled down their expansion plans after the global financial crisis in 2008.
“Now we are sort of restarted to accelerate our investments,” Cordes said. The retailer plans to focus on Asia and eastern European countries such as Russia. “In the years to come, we will not distribute our investments for store openings evenly across the globe, there will be a clear focus on Asia plus comparable countries,” he said.
Meanwhile, Metro plans to create three hubs for its accounting department with one each in Germany, India and Poland from its currently centralized operations in its home market. “This is a business which will not be outsourced to third parties but will be shifted from Metro Germany to Metro Poland and Metro India,” he said. “We will sort of reduce some 250 jobs in Germany and shift them to Poland and India.”
The company hasn’t decided on where to open its accounting centre in India. “The basic reason we are doing this is not cost-driven but process driven and we know we can find the appropriate people in India who can do that,” Cordes said.