Is organised retail coming back with a bang?  

January 20, 2010

Is organised retail coming back with a bang? A quick check at some of the malls shows that footfalls have increased dramatically. According to a recent research report by Goldman Sachs, one of the most dominant themes of 2010 is that urbanisation will lead to rapid spread of organised retailing. Goldman estimates that 100 million people will move to cities in this decade, and a whopping 650 million may urbanise by 2050. Urban households are on the rise, especially in the middle-income category which is growing at 14%; the high income category recorded a 24.1% CAGR (Compounded Annual Growth Rate) between the years FY06-FY10. Organised retail is 5% of the retail business in India compared to more than 20% in China and 80% in the US of the overall market, pointing to a huge potential for growth.

An important factor for the revival in fortunes of malls is that rentals have come down after the financial crisis. Rentals formed 40% of total costs. Landlords are now more open to revenue-sharing in rental agreements, as reported by Moneylife Digital earlier (see here).

The macro picture is supported by micro details. Aditya Birla Retail Ltd (ABRL), India’s second biggest supermarket operator, is planning to start three additional megastores over the next three months at Mumbai, National Capital Region and Hyderabad.

“We are completely astounded by the footfalls in some of our hyper-markets in Bengaluru and Indore which have out-performed the competition. In the next three months, we have three more hyper-markets coming up at Thane, NCR (Rohini) and Hyderabad (Saroornagar),” Thomas Varghese, chief executive, Aditya Birla Retail Ltd, told Moneylife.  

“We plan to put up 6-10 hyper-markets within this financial year and our aim is to put up 10-12 hyper-markets every year. Currently, we have five hyper markets,” he added. ABRL is planning to ramp up its total mall area to 10 million sq ft over the next five-six years.

Meanwhile, Shopper’s Stop plans to add six-eight new stores in 2010, adding 400,000 sq ft, for Rs100 crore. It plans to add up 15 new supermarkets in the next three years. Currently, it has 28 stores spanning across 1.8 million sq ft. The Future Group is also planning to add 10-12 new stores for Rs400 crore with an addition of 30 million sq ft compared to 13 million sq ft currently. Spencer’s Retail is hoping to add at least 12 large-sized formats in 2010 for Rs100 crore. The Wal-Mart and Bharti Retail joint venture has plans to open 10-15 hypermarkets by 2015. It launched its first store in May 2009.

According to Goldman Sachs, urban consumers are moving from basic necessities to more discretionary goods like durables, education, fuel, medical and clothing in the year recording a growth of 14% on a CAGR basis between the years FY00-FY07. The report predicts that wage growth in 2010 is likely to be one of the highest in India, supporting consumption demand which has increased from 6% in 2009 to more than 9% in 2010 compared to just 3% y-o-y (year on year) growth in Singapore. — Moneylife Digital Team