Most of the big retail brands are struggling to survive in India, as they are still figuring out which revenue models will work in the country
Remember when organised retail made its entry into the country, it was touted as the best thing that had ever happened to the industry? Now, the dust is settling and a number of large players in this segment are taking a serious re-look at their plans and are re-examining their revenue models as push has finally come to shove.
The Indian organised retail industry is in turmoil, as most big retailers are still trying to figure out which revenue model will work in India. Indiabulls, one of the largest real-estate players, has shut down one of its largest lifestyle stores—‘Centre One’ at Pune and is now evaluating whether this format of retail merchandising will work in the country.
Retailers like Aditya Birla Retail, Future Group, Reliance Retail and Spencer’s Retail have either closed down or shifted hundreds of their stores in the recent past to stem losses.
In recent months, several retail firms have either gone bust or have been closing down some stores, scaling back expansion plans and even laying off employees in an attempt to cut costs and to beat the continuing acute downturn in the business, which began with the slowdown in the economy.
“In our view, the only thing that works is a price advantage; rentals can be absorbed if they are not exorbitant. The lifestyle format does hinge on price advantage, and hence is not successful. In the long run, we believe that the wholesale format is the one that will be able to achieve some scale,” said Gagan Banga, chief executive officer, Indiabulls Financial Services.
Indiabulls took over the retail business from Piramyd Stores and re-branded it as Indiabulls Megastore (lifestyle) and Indiabulls Mart (supermarkets).
In March 2010, Indiabulls’ retail arm—Store One Retail had forayed into wholesale trading. “We have already exited our small format model (and we have converted it into a cash-and-carry model). We have now come to realise that only the cash-and-carry model will really work in the long term (in India),” added Mr Banga.
Consulting firm KPMG had predicted in March that the slowdown in the retail business is expected to last for another 12-18 months.
Spencer’s Retail Ltd also shut down its retail store in Shivaji Nagar at Pune. According to the company, rentals were not the issue for shutting down the store. “The catchment (the number of footfalls) was unviable in that area. The rental was not a major issue for shutting down the store,” said Shakuntala Sarkar, head, corporate communications, Spencer’s Retail.
In the past one year, Aditya Birla Retail has closed 39 stores (which include supermarkets and hypermarkets). The company wants to discontinue unprofitable stores.
Thomas Varghese, CEO, Aditya Birla Retail had earlier told Moneylife, “This decision of shutting down stores was a part of the company’s policy to close down unviable retail stores.”
Reliance Industries Ltd (RIL) was also very aggressive on expansion when it entered the retail sector in 2006. It opened around 1,000 stores in 86 cities over three years. But its retail arm faced political turmoil in Uttar Pradesh and West Bengal. The company is again back with a new plan of hypermarkets, which will have a floor space of minimum 80,000 sq ft.
Reliance Retail currently has stores in many formats, including small neighbourhood stores (Reliance Fresh), consumer goods (Reliance Digital) and clothing (Reliance Trends). It will use the Reliance Mart brand for its hypermarkets.
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