STORES Magazine - January 2009 - (Page 90)

POSTSCRIPT endcap Indian Retailers Revise Grand Expansion Plans BY MANU GHAI Manu Ghai is a retail analyst with Planet Retail. Despite growing demand for modern outlets in India, retailers are beginning to see that rapid expansion does not always pay off. Higher operating costs, resulting from rising property prices and food-price inflation, are impacting retailers’ expansion plans. Market conditions are, therefore, forcing companies to look long and hard at their expansion to stay in shape for the future. Small formats first to slow expansion With urban property prices at all-time highs, retailers are finding it difficult to open new stores. This, combined with high levels of inflation and a nascent infrastructural network, has meant that Indian retailers are finding it difficult to maintain profitability and stock their shelves. Operators of neighborhood formats like Spinach are subsequently slowing the pace of store openings. While Spinach had originally aimed to have 250 stores in operation by March 2008, the company has just 58 outlets to date. To rescue themselves from possible bankruptcy, some neighborhood store operators are looking to discontinue unviable operations so that they are able to break even in the long term. Larger retailers capitalize on misfortunes Despite these difficulties, the retail market in India is still potentially lucrative. Bharti Enterprises, one of India’s leading conglomerates, operates seven EasyDay grocery stores across the north of the country and has plans to open 20 more outlets by the end 90 STORES / JANUARY 2009 of its fiscal year. This is an optimistic-butachievable target due to the company’s strong financial footing. Even Bharti is not immune to market conditions, however. In an environment where replenishment costs are increasing and revenues are on the decline, the company is finding it much harder to retain profit margins and is beginning to report a loss — a factor that may prompt the retailer to rethink its longer-term strategy. It also is worth noting that it has been nearly two years since Bharti announced it would be joining forces with WalMart to develop cash & carry outlets, and the first store has yet to open. Nevertheless, it remains likely that the Bharti/Wal-Mart joint venture will launch its much-anticipated format this year. Reliance rethinks bullish strategy Prior to 2008, rapid outlet expansion was the retail norm in India. Over the previous five years, most of the country’s well-established conglomerates made their first forays into the retail sector and, in 2007 alone, the number of outlets increased by more than 70 percent. Retailers like Reliance quickly ran into problems, however, and the company’s Reliance Fresh banner failed to reach targets. When the retailer launched its first Fresh store late last year, the group was still optimistic about its plans to operate 4,000 stores by 2010 and 5,000 by 2012. Such targets now seem overly ambitious, and the retailer has been forced to scale back expansion plans and to close some stores. The format has not only had to battle its way through high-profile opposition from traders and politicians, it also has struggled with issues related to stock availability, produce quality and price. With the world’s top four retailers planning to enter the fragmented Indian retail market fairly soon, local players will have to rework and rationalize their operations — focusing on efficiency over near-term expansion — to better prepare themselves for the increased competition. Learning from mistakes Retailers operating in India are learning from their past mistakes and are pulling together a strategy that is more suitable to the current economic climate and market conditions. This means that many companies will be forced to turn around their strategy and focus on profitability rather than relentless expansion so that they can hold onto their key positions for some time to come. WWW.STORES.ORG http://WWW.STORES.ORG

Table of Contents Feed for the Digital Edition of STORES Magazine - January 2009

STORES Magazine - Jauary 2008 Contents Executive Editor's Page President's Page Mechanical Marvel P&G Invests in Ocado Now I Remember What Shoppers Think 10 Things You May Have Missed Numbers Worth Counting Full Price/Markdown Retail People Breaking the Monotony Multi-Channel Concept2Watch E-Commerce Analytics Category Management IT Systems In-Store Technology IT Systems Communications Website Strategy Communications SOA Energy Video Surveillance Employee Theft Online Fraud Industry Perspective Loeb Retail Letter ARTS Update Point of View NRF News Retail Crossword End Cap

STORES Magazine - January 2009

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