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The shop opera

business Updated: Jan 17, 2010 22:57 IST
Rachit Vats

India’s organised modern retail, which took a fair whipping over the last year thanks to the economic slowdown, is still looking forward to a good two-three years starting 2010. The retail industry is projecting Rs 53,500 crore in revenues by 2013, of which organised retail expects to capture 20 per cent. Its current share is a mere five per cent of the Rs 41,000 crore pie.

Organised modern retail people argue that despite the slowdown, the industry grew by around 12 per cent. According to IMRB, the consumer confidence is back on track. The downturn had the least impact on the FMCG (fast moving consumer goods), apparel and telecom sectors. Real estate, home improvement and aviation, though, were badly hit.

IMRB’s research also shows that tier II and III cities are driving consumption and by 2011, about 65 Indian cities will have a population over one million, up from 35 in the 2001 census. By 2021, there may be more than 125 Indian cities with a million-plus population and another 500 cities with half a million to one million people.

Anshuman Magazine, chairman & MD, South Asia, CB Richard Ellis, says, “The biggest plus is urbanisation. People are going to shift from smaller towns to cities and eventually to bigger cities. Consumption will shift away from basic commodities.”

According to Technopak Advisors, the Indian retail market is expected to receive Rs 3,000 crore in fresh investments over the next five years, giving modern retail a compounded annual growth rate of more than 40 per cent. Saloni Nangia, vice president, Technopak Management Consultants, weighs the optimism realistically: “2010 will be about store level profitability. The approach will be more bottomline driven. In the last five years, a lot of companies expanded fast but in the last year, retailers have started looking at improving operations.”

In 2009, modern retail chains shut down many stores. Aditya Birla Retail closed 70 unviable stores of its More chain. Almost all retailers, including the Future group and Reliance Retail, have scaled down expansion plans.

But, says Nangia, “in retail, closing and opening stores happens throughout its life cycle. These corrections were much needed.” Corrections yes, but retail chain Subhiksha was forced to close all of its 1,650 outlets across the country amidst rent defaults, unpaid employee salaries and vendors withdrawing supplies. Others such as Spencer’s Retail, Aditya Birla Retail, Reliance Retail and Vishal Hypermar-ket shut down 270 stores totally in 2009, according to a HDFC Securities report.

Actually, there is a push and pull between the research figures and the ground reality. The macro factors hint at economic stability and a resultant consumer confidence that retailers are banking on. But going by the slowdown experience, real estate developers who have also offered retail developments are not so gung ho. Multiple retail projects were converted to housing projects in the last two quarters owing to low demand from the retail side.

A Cushman & Wakefield report says that of the 44 malls proposed at the beginning of 2009, less than 50 per cent came up by the year’s end. A number of developers postponed mall projects in 2009. Revival is expected in 2010.

Pankaj Kapoor, founder and MD, Liases Foras, says, “The optimism is too high. The tier II, III cities have their own demographics and the purchasing capacity is too low. Apart from the National Capital Region (NCR) and Mumbai, retail has not picked up. Right now, there is an oversupply. Developers with space do not have tenants.”

The cautionary note notwithstanding, BS Nagesh, vice-chairman, Hypercity Retail (India), says optimistically of his company: “We are left surprised by the growth in the last two months – we have broken even. Just like the entire industry, we are also extremely bottomline conscious.” K Raheja’s Hypercity Retail chain recently opened its fifth store and plans to add 15 more over the next three years.

Thomas Varghese, CEO, Aditya Birla Retail Limited, is also upbeat. “There will be new formats and experiments,” he predicts. “We are planning to get into many other formats.” His company is looking at a 30-35 per cent growth and a Rs 1,600 crore turnover this fiscal. It will add a hypermarket presence to its multi-format agenda and open three new More megastores at Thane, the NCR and Hyderabad.

It’s a mixed bag of optimism and caution. The overall prospects seem good. India led AT Kearney’s list of emerging markets for retail investments for three consecutive years and stood second after Vietnam in 2009. As the second fastest growing economy and the expected third largest GDP growth economy, India is being viewed as being among the top five most attractive FDI destinations globally.