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Retail boom near, are suppliers ready?

A Battle Royale is about to begin in sourcing the goods that will adorn the trendy new shelves, reports Prerna K Mishra.

india Updated: Dec 04, 2006 20:30 IST

With global giants like Wal-Mart and Tesco making a beeline for India and domestic players like Reliance and Tatas revving up with their own retail plans, a Battle Royale is about to begin in sourcing the goods that will adorn the trendy new shelves.

In the next couple of years, both global players and India's best will compete for sourcing from a limited set of quality suppliers and manufacturers, industry officials say.

While the likes of Welspun, Gokaldas, the Gujarat Co-operative Milk Marketing Federation (which makes Amul products), footwear maker Liberty, and Geetanjali Gems are writing detailed expansion plans, a majority of the other suppliers remain small and are showing no signs of scaling up their operations to feed exploding demand.

The $55 billion US-based retailer Target, which has been sourcing merchandise from India under Target Sourcing Services since 1999, will beef up its sourcing from India next year. The chain currently sources $300 million worth of merchandise from India, which is expected to touch $450 million by the end of 2007.

Speaking to Hindustan Times, Target's Managing Director P Jagannath said: "In the US, Target is expected to become a $100 billion retail chain by 2010, ramping up from about 1,400 stores across US to about 2,010 in the next four years. Since we are already working with 40-45 Indian suppliers, the sourcing from here is going to increase exponentially to fuel the expansion drive in the US."

According to the offshore research and consulting company Zinnov, a majority of the top 20 giant retailers worldwide have plans to increase sourcing from India. "Till now many of them just had third-party buying offices in India but now they are setting up closely-held sourcing and buying offices," says a Zinnov report titled "Retail Sourcing from India - Can it be the Next Success Story after IT Servcies and BPO?"

The catch in the Indian sourcing story is that suppliers scaling up to tap the opportunity are few and far between. In fact, a handful ends up supplying to rival buyers.

For instance, Welspun, one of the most accepted Indian suppliers that clocked a turnover of about Rs 2,000 crore, of which more than Rs 1,150 crore is from exports, has supplier relationships with 12 out of top 20 retailers in the world. The company's customers include Wal-Mart, K-Mart, JC Penny, and Target.

Even before Wal-Mart entered into a strategic partnership with India's Bharti Group, Wal-Mart Stores Inc had plans to source goods worth over $600 million from India by 2006-end. This was a 50 per cent jump from 2005.

In fact, Wal-Mart's Bangalore sourcing division had also started serving as the hub for sourcing merchandise from the region for stores globally.

In the coming days, retailers will fall over each other to tie up with low-cost suppliers to source various items.

Categories to watch out include apparel, home textiles such as bedding and towels, jewellery, footwear, leather, woodwork, pottery, stainless steel and other household items, industry officials say.

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First Published: Dec 04, 2006 19:57 IST