Retail News September 2006

TRENDS FOCUS: Mega Plans for Reliance Retail

September is likely to see a lot of activity in the retail sector. Reliance Retail’s much-awaited store will open in Hyderabad in this month. The Indian major’s first foray will be in the food and grocery segment. Raghu Pillai, Reliance Retail President and Chief Executive (Operations and Strategy) announced these plans in New Delhi.

The company plans to offer the consumer value for money and therefore has built a network of tie-ups with the state governments of Punjab and West Bengal. Its MoU with Punjab includes an investment of Rs. 5 billion to build rural business hubs and franchisee stores in the state. Its commitment to West Bengal runs along similar lines with RS 15-20 billion invested to create agri-retail chains. Reliance Retail has also developed plans to airlift fresh produce from other states across the country. The consumer will therefore enjoy a steady supply of farm-fresh fruits and vegetables.

Incidentally, nearly 50% of Reliance Retail’s planned 10,000 outlets in all formats - hypermarkets, specialty stores and supermarkets – will be in the food and grocery domain.
Closely following the business model made popular by Wal-Mart, the firm plans to keep its costs low through outsourcing its staffing. This can be done through the franchisee store model. Thus, very few staff will be on Reliance rolls, reducing operating as well as long term costs. Once all its stores are on the roll, Reliance will be among the largest employers in India and therefore, is concerned about unionization of its staff.

Chairman Mukesh Ambani announced plans to launch a new company called Reliance Retail Ltd. Which would be fully owned by Reliance Industries. The group’s retail plan entails an investment of Rs. 25,000-crore. Nearly a third of this amount would be invested in building supply chain management capabilities. Setting a brisk pace to the launch, the company plans to start with an initial 450 outlets and targets 1,500 outlets by end 2006-07.

Admittedly, Reliance’s biggest strength is its deep pockets. But it will be a long climb for the firm in the retail sector, which is already peppered with the who’s who from India Inc.

Regional Trends

Chandigarh is the new consumer paradise

Chandigarh residents, on average earn Rs. 109,000 a month, spend Rs. 72,000 and save the balance, Rs. 37,000. The total market size of Chandigarh is Rs. 69 billion.

Other top 10 cities based on per capita income are Thiruvananthapuram, Jamshedpur, Vadodra, Kochi, Goa, Guwahati, Faridabad, Bangalore and Thiruvallur. Six cities, Chandigarh, Thiruvananthapuram, Vadodra, Goa, Guwahati and Faridabad are placed in the top 10 for all three factors, earning, spending and saving.

Source: Economic Times

Pune is a retail goldmine

According to IS Narula, CEO of Ishanya, a specialty mall in Pune, “… the national average spend in organized retail is 3-3.5%. In Pune, this is much higher, at 5-7%.” Pune is also known for its youthful population with several colleges and young professionals, which retailers find a qualitative test market before launching in larger cities.

Chennai becoming a hotspot for malls

Other companies building in the area are, Marg Constructions will be building a 450,000 sq ft Riverside Mall and Suryavandhan Estates will be building a 250,000 sq ft Coromandel Plaza. The IT Corridor will be adding on 30,000 jobs next year which will further increase the demand for retail and commercial space in the region.

Source: Economic Times

Bangalore fast becoming a retail hotspot

According to Darshan Mehta, President of Arvind Brands, “ Bangalore is fast emerging as India’s answer to Los Angeles or Seattle. Unlike traditional markets such as New York and Chicago in the US which are huge, LA and Seattle emerged as smaller but attractive alternatives in the 60s and 70s.”

Brigade Road in the heart of town is already an established center for retailers, and now newer areas such as Lavelle Road and 100 ft Road in Indiranagar are booming too.

Luxury Lifestyle Trends

Valentino opens shop in India

Sheetal Mafatlal, president of Mafatlal Luxury, said, "The luxury and fashion market in India is growing at an unprecedented rate with a large captive consumer audience in the age group of 20-45 years. This segment is not only aware of international brands but also has the disposable income and interest to keep up with international fashion."

Source: The Hindustan Times

Thailand ’s Index Living Mall to enter Indian market via franchisee

The company will collaborate with its Indian partner to develop home furnishing products. Its Indian partner company will be investing in retail outlets, while Index would supply the products. There will be 7 outlets opened in the next five years, each ranging from 19,000-23,000 sq ft.

Index has 16 stores in Thailand and 6 outlets in Indonesia. India will be its second international market, although plans are being made for an entry to the Dubai market.

Source: Bangkok Post

Godrej to diversify to include lifestyle brands

Shyam Motwani, Vice President and Business Head for Godrej & Boyce Mfg Co Ltd, said, “We have already initiated talks with several brands for a retailing tie-up, and will soon be placing them in our store.” The company plans to become a Rs. 3 billion company by 2010, and having over 90 Lifespace stores in India.

At present there are 42 Lifespace stores and 6 more will be opening by the end of the year. Besides metro’s, the company plans to open stores in tier II and tier III cities such as Nagpur, Jamshedpur, Ranchi, Trichi, Kozhikode, Jalandhar and Ludhiana.

Source: Daily News & Analysis

Bombay Dyeing and Sabyasachi tie up for home products

Source: The Hindu Business Line

General Trends

India’s top three retailers register record growth rates

Pantaloon Retail’s turnover for the quarter was estimated to be Rs. 5.53 billion. The company’s value retailing segments, Big Bazaar and Food Bazaar grew by 73%, while the Pantaloon Lifestyle store grew by 29%.

Shoppers’ Stop had net sales of Rs. 1.6 billion, increasing net profits by 96% with the company’s loyalty program, First Citizen Club accounting for 63% of the sales. The company’s other retail ventures, Home Stop and MotherCare accounted for a combined turnover of Rs. 70 million, while HyperCITY achieved Rs. 1.25 billion in its first month of operations.

Trent had net sales of Rs. 1.05 billion, for all of its retail ventures, including Westside, Star India Bazaar and Landmark. Other stores also had a marked increase in net sales. Provogue’s sales grew by 20% and profits grew by 32%, while Piramyd Retail had net sales of Rs. 300 million.

Retailers relying on private labels

Private labels ensure better margins for retailers, usually in the range of 25-30% but sometimes as much as 50% higher than branded products. Consumers are also selecting more private brands than before, leading to retailers to increase their stock of current private labels and also add newer product categories.

Sales of private labels are increasing as they are usually marketed prominently, have prominent displays, attractively priced and also offered as a special deal. In western markets, almost 90% of sales in larger stores come from private labels.

Retailers keen to open digital lifestyle stores

Industry sources estimate the size of the digital lifestyle market to be around Rs. 25 billion, which is likely to increase to Rs. 100-120 billion by 2010. The leading international players in this segment at Fnac in France, Best Buy in the US and Dixons in the UK.