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Wal-Mart sets great store by
India
By Siddharth Srivastava
NEW DELHI - India's retail market is
valued at over US$180 billion, the reason why
several foreign players have been urging the
country to open the sector to foreign direct
investment (FDI). The latest to pitch for the
massive pie is $288-billion US-based Wal-Mart, the
largest retailer in the world.
Earlier
this month, the group's international president,
John Menzer, did the rounds of the Indian
establishment allaying fears as well as promoting
the synergies that can be worked out by allowing
foreign retailers to enter the Indian market. In
keeping with the scale and presence of his
company's operations, Menzer met with Prime
Minster Manmohan Singh and Commerce Minister Kamal
Nath. The main purpose of the meeting was to
convince the Indian government that foreign
investment norms in retailing should be relaxed.
"We had a very good meeting," said Menzer,
who carries a leather wallet sourced from India,
after his 20-minute meeting with the prime
minister. "If I have an opportunity to bring
stores into the [Indian] market, we will get
better knowledge...and can even accelerate the
growth of our exports," Menzer said. Last month,
David Mulford, US ambassador to India, met
Manmohan Singh, Finance Minister P Chidambaram and
Nath reportedly at the behest of the US retailer.
Wal-Mart, headquartered in Arkansas, has
no stores in India, where foreign retailers are
only permitted to operate through franchises. But
it sources apparel, home textiles and accessories
from India. Wal-Mart operates a procurement center
in the southern Indian city of Bangalore, which is
expected to export products worth over $1.5
billion to Wal-Mart stores worldwide this year,
compared with $1.2 billion last year - mainly
leather apparel, textiles, home furnishings and
jewelry. "The foods sector is an area which we
have not yet tapped to its full potential from
here and we will focus on this in the near
future," Menzer said.
Among Asian
countries, Wal-Mart has branches in South Korea
and China. Besides Wal-Mart, US-based Starbucks,
France's Chanel, Britain's Marks & Spencer and
Germany's Metro are keen to enter India's retail
market. Marks & Spencer Group, Dairy Farm
International Holdings of Hong Kong and
Dubai-based Lifestyle International have
operations in India through franchises and joint
ventures, while Metro and South Africa's Shoprite
Holdings are into wholesale.
Menzer said
that India was the fastest growing export market
for the company. The sourcing from India is
expected to increase further, with low costs a big
attraction. Wal-Mart bought about $18-billion
worth of goods from China last year.
Indian retail
India's retail
sector is largely unorganized, with an estimated
12 million tiny outlets, or "mom and pop" shops
catering to the personalized and often exacting
demands of Indian housewives. While they cater to
individual needs, what they lack is the means to
provide the "shopping experience", the hallmark of
retail giants such as Wal-Mart, Carrefour and
Tesco.
In recent years, consequent to
rising incomes in India, there has been a huge
growth of shopping malls and large-sized
department stores. While a third of India's 1
billion people earn less than a dollar a day, the
retail giants are targeting the 300 million
"middle class" population, with rapidly growing
salaries and global skills.
Riding on this
section of the population, several Indian
retailers, backed by substantial business groups,
have entered the fray. Private players such as
Tata, via its Trent unit, RPG in food superstores,
Shopper's Stop and the Pantaloon group, which owns
the popular Big Bazaars, have more than doubled
business over the last couple of years.
Pantaloon's sales were close to $150 million in
the year ending June 2004, with plans to double
its shop-floor area to 5 million square feet in
the next couple of years. Organized retailing only
makes up about 3% of the overall industry, but its
share is forecast to grow to 8-10% in the next
five years.
Predictably, the international
players want a piece of the pie. The Indian
government has said it plans to allow foreign
investment (26-49%) in the fast-growing retail
sector, but it hasn't made a final decision
because of resistance from leftist allies, who
fear that the largely disorganized individual
retailers will be wiped out. The left parties are
peeved that Commerce Minister Nath had in a recent
TV interview confirmed that the government was
considering allowing FDI in the retail grocery
sector. "In our view, allowing FDI in retail trade
will not only destroy employment but is also not
in the long-term interests of consumers as it will
create monopolies. We believe this is also against
the agreed principles of the common minimum
program," a left party statement stated.
The opposition, Bharatiya Janata Party,
which relies on small traders as its major support
base, is also opposed to the move. There is
pressure from Indian retailers not to open up as
well. Indian corporations such as Reliance fancy
their own chances of launching mega retail chains.
It is expected that Wal-Mart will
initially open at least 10 stores in its first
phase in India, even if it has to tie up with an
Indian partner, which will make it larger than any
other Indian discount store chain. It has set up
45 stores in China in the 10 years it has been
there. Menzer, however, discounted apprehensions
that opening of the sector for international
players would mean closure for small and
medium-size Indian retailers. "The Indian economy
is fantastic...There is room for everyone."
The interest shown by organized retailers
only augurs well for the Indian consumer, who has
been reaping the benefits of lower prices and
quality services due to competition, whether in
airlines, telecom or automobiles. Big Bazaar has
been running a high-discount festival that has
attracted people in droves. Wal-Mart's scale of
operation would call for even bigger discounts,
and more consumer interest.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2005 Asia Times Online Ltd. All rights reserved.
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