Wednesday, October 10, 2007

Big retail still gung-ho on expansion

Even in the face of protests from trade groups, escalating real estate costs and pressure on margins, the march of domestic retail chains continues unabated.

Led by Reliance Retail, Pantaloon, Subhiksha and Spencer’s, these retail businesses are going ahead with their plans to set up about 2,500 stores, which, according to Technopak Advisors, will entail an investment of Rs 20,000 crore by December next year.

Organised retail in the country is growing at 30-40 per cent a year, according to management consultancy firm PricewaterhouseCoopers, fuelled by robust 9 per cent economic growth that is putting more disposable money in consumers’ pockets.
Company New
Rs crore
Pantaloon 150 1,350
Subhiksha 600 800
Reliance 205 15,000
Spencer’s 500 500

However, investor buoyancy is getting increasingly laced with scepticism in the face of growing backlash among those who fear that small shopkeepers will get wiped out. This backlash is slated to reach a crescendo tomorrow as tens of thousands are expected to gather in Mumbai’s Azad Maidan for the biggest rally yet against organised retail.

One of the targets of the protesters is Mukesh Ambani’s Reliance Retail, which has borne the brunt of recent protests in Uttar Pradesh, Orissa, West Bengal and Kerala.

The company is going ahead with plans that entail investments worth Rs 15,000 crore in setting up 205 stores, many of which will sell items not sold now, such as footwear. A part of this money will be spent on setting up distribution centres, according to a company executive.

It will take the number of Reliance Fresh stores to 500 from 347 in one year and increase the number of Reliance Digital stores, its consumer durables and information technology chain, to 14 from just one. The company will also set up 13 new Reliancemarts, its hypermarket chain, six Reliance Apparel stores, 21 Reliance Health and Wellness stores and seven Reliance Lifestyle stores.

Kishore Biyani’s Pantaloon Retail (PRIL) plans to increase the retail space to 10 million square feet by the end of 2008 from 6 million sq feet in 45 cities now. The company is planning a capital expenditure of Rs 650 crore and an investment of Rs 700 crore for maintaining inventory and working capital for new stores.

Pantaloon will set up 60 Big Bazaars, 15 Pantaloon stores, 100 Food Bazaars, 5 Brand Factory outlets, 7 more Central malls, 25 Depots (books and music chain), 6 Fit & Active gyms (JV with Talwarkar’s), 7 Collection-I (lifestyle furniture stores), 20 more E-zones (electronic stores) by June 2008.

Interestingly, the opening of PRIL’s major formats such as Big Bazaar and Pantaloons accounts for 85 per cent of the rollout plan. The group is also setting up 1,000 KB’s Fair Price Stores in 18 months.

“The company is targeting a turnover of Rs Rs 6,500 crore for the current financial year with 35 per cent of the turnover to be generated from the opening of new stores across different formats and concepts at locations all over the country,” said Rakesh Biyani, CEO, retail, PRIL.

Amid all the ambitious plans and looming protests by trade groups, Technopak Chairman Arvind Singhal said that though most of the players would go ahead with their plans and succeed with the change, they would now make less noise about their plans.

“Though there is no evidence at the ground level to show that retailers are less excited about the future than they were six months ago, the major factor I see going ahead is that the high-profile players will be circumspect and understand that retailing is not about investing crores of rupees, but setting up a single shop,” Singhal says.

But AT Kearney’s Hemant Kalbag believes that retailers may not be able to achieve the desired bottom lines in the next 2-3 years since realty and labour costs are going up continuously, putting pressure on margins.

“The next one year is critical for achieving as much footprint as possible and establishing itself as a strong player for all retailers,” he said.

The 300-store-strong Spencer’s is also planning to set up 500 more stores by June 2008 with an investment of nearly Rs 500 crore. The RPG Group-promoted company is expecting revenues of Rs 2,000 crore from its operations by June 2008.

“We are opening 30 stores every month. By the end of June 2008, we will do business of Rs 150 crore to Rs 160 crore per month. Our top lines are always improving,’’ said Sumantra Banerjee, CEO, RPG Retail.

South-based retail chain Subhiksha, which has nearly 910 stores, is opening nearly 600 stores in the next one year with an investment of Rs 800 crore.

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