By 2012, India may have 14 times as much space dedicated to modern-format retail as it had in 2002, provided the supply of land rises quickly enough to match demand. More than 1 million new jobs can be created in the next five years if only the gleaming new stores can find the right workers to hire as sales assistants.
Hypermarkets, supermarkets, shopping malls and convenience stores account for a minuscule 2% of the $300 billion (Rs13,20,000 crore) industry in India. This is poised for a dramatic change. Now that the government has allowed global retailers some access to the protected market, there is a big rush among local entrepreneurs to preempt their entry.
The share of modern retail in India may increase to 35% by 2015, according to Wal-Mart Stores Inc. The transformation will be faster than in Brazil, which went to 38% from 5% in 15 years.
“The pace of expansion in India will be unprecedented in the history of retail,” says Ken Wallet, the Asia-Pacific managing director of Atlanta-based supply-chain consulting firm Chainalytics LLC, which is advising Reliance Industries Ltd. Reliance, India’s biggest non-state company, opened its first store, a grocery, on 3 November. By the end of last month, it had 49.
That’s one store being opened almost every second day in a country traditionally reliant on bazaar stalls and push-cart vendors for food and on mom-and-pop stores for everything from clothes and toys to mosquito repellants.
“India is one of the prime growth engines for retail in the world today,” says Wallet, who is based in Hong Kong. The flip side of this growth is that it will put tremendous pressure on resources. Everything from rentable space to skilled labour will be in short supply. Kishore Biyani, managing director of Pantaloon Retail India Ltd, India’s biggest publicly-traded retailer, will be adding 4 million sq. ft of space this year. Between them, Reliance and Pantaloon will add about 150 million sq. ft of space in the next five years.
Then there’s telecommunications tycoon Sunil Bharti Mittal, who will open his first store on 15 August in partnership with Wal-Mart. Britain’s Tesco Plc and France’s Carrefour SA are expected to follow suit. Some 100 shopping malls will open during the next couple of years in just the big cities, including the Mall of India, a 3.2 million-sq. ft store near New Delhi.
Space occupied by retail may well exceed 300 million sq. ft in five years, compared with about 22 million sq. ft in 2002. But where is the land?
A plethora of rules, from rent-control and zoning laws to building-height restrictions, are constraining the availability of prime retail space in Indian cities, pushing up rents. Property broker Cushman & Wakefield Inc. said in October that retail rents in New Delhi’s Khan Market had escalated the most out of 233 shopping locations around the world in 2006. Unless city planners make a serious attempt to remove regulatory hurdles, the high rental costs alone might end up grounding some of the retailers’ dreams.
Every 300 sq. ft of modern retail space in India will need one customer associate, according to a report last year by New York-based consulting firm KPMG LLP. Although India has 100 million people in the age group of 20 to 24, young workers with employable skills are in short supply. Store managers with a couple of years’ experience are demanding and getting 30% increases.
TCI Group, India’s largest truck-fleet operator, said last month it was looking for someone with “good exposure to retail concepts”. There is already a shortage of such people. “Candidates having relevant experience in the United Arab Emirates and willing to relocate back to India will be given preference,” a TCI online job advertisement said. Supply of labour will eventually respond to demand, though other obstacles will still have to be surmounted.
A survey conducted last year for Transparency International showed that truckers in India lose half their day to forced stoppages at state borders, toll booths and on highways. This will be simply unacceptable to modern retailers, who will seek profit in efficiencies they can squeeze out of logistics.
As stores start churning inventories more quickly, billions of square feet of new warehousing capacity will have to be built across the country, and it will need to be fitted with cooling units to keep perishables fresh. That will be good news for United Technologies Corp.’s Carrier air-conditioning unit. Even so, the creation of a farm-to-store cold chain will strain power utilities, which are struggling to meet existing demand.
From transportation and storage to processing, supply- chain-related costs will account for 3.5% to 4.5% of sales revenue for Indian retailers, says Wallet of Chainalytics. “The game is going to be about supply-chain execution and customer satisfaction,” he says. “Whoever has the best distribution network and inventory deployment practices will come out on top.”
Mukesh Ambani, chairman of Reliance Industries, said in an interview last month with MoneyLife magazine that he wants to catch the “next wave” of distribution logistics. “We can build what the US will not have by 2010,” he said.
That’s not an empty boast, though it might well become one if supply-side constraints prove to be too overpowering for soaring ambition.