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Indian Retail Industry

Essay by   •  January 19, 2011  •  3,946 Words (16 Pages)  •  1,760 Views

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Retail Industry overcoming the challenges?

A- 1.) Tie вЂ"ups with Professional Institutes to overcome the Problem of trained manpower

Retail Houses like Reliance Retail and Future group are most likely to ink a strategic partnership with NIFT. The partnership will provide Reliance Retail with trained pool of professionals, latest designs and access to NIFT research base.The MoU will be signed up by December 2006. The partnership will include industry sabbatical for NIFT faculty and scholarship for the students.

Recently, even Raymonds has inked a similar partnership with NIFT. NIFT plans to enter into partnerships with India’s leading Retailers to commercialise its recently launched fashion label.

Source : “ The Economic Times dated 16/1/2006

2.) Reduction of Commission paid to traders and middlemen and improving quality of products like vegetables

Reliance Fresh and Pantaloon have begun buying potato futures on MCX. MCX in turn charges a premium from cold storage owners who want to be on its list of potato warehouses.Futures trading has become a winner for MCX with almost 40,000 tonnes being traded everyday. Retailers like Reliance and Pantaloon get fresh potatoes and other vegetables and also save on commission paid to traders and middlemen. Also, when prices on the exchange fall below the spot market,they will get vegetables cheaper from the exchange than the open market.This means opening of more cold storages across the country. The quality is being ensured by fitting the selected warehouses with a meter to constantly monitor temperature and moisture. This meter will be connected through a radio antenna with MCX’s servers in Mumbai.

Source: The Economic Times dated 14/11/2006

3.) Challenges faced by Pantaloon Retail like the challenge of overcoming the Free cash flows which are negative, and to increase customer intelligence and expansion.

Pantaloon Retail’s Mr . Kishore Biyani is about to raise funds for a high risk 4,000 crore expansion. He is buying up more retail estate than many Asian biggies. He is attempting the quickfire launch of 18 formats and over 3,340 new stores by 2010. Pantaloon Retail is also getting into risky and capital Intensive businesses, including Lending to his customers and selling Insurance. This is being done when Pantaloon Retail is under 395 crore negative cash flow from operations and investment. If he manages to expand as much as he is planning to do, he will need hordes of managers at every level which would be tough as there is shortage of talent.

Profit margins, too are coming under pressure. Few months back, Biyani had explored the possibility to collaborate with Mr Mukesh Ambani , but the talks failed.

Other Retail houses like Trent, the retail arm of $17.8 billion TATA group, has expanded into hypermarkets.Shopper’s Stop is expanding. South Africa’s Shoprite is here via franchisee route. UK’s giant Retailer Tesco is in talks with Homecare Retail Marts, owners of the upcoming Magnet hypermarket chain.Walmart is waiting for FDI to be allowed. Mr. Biyani is planning to turn Pantaloon’s Retail into a $7 billion integrated retailer with $ 1 billion profits by 2010. Biyani’s empire, recently named the Future Group is expanding.

In last two and half years, Mr Biyani has booked 16 million sq. feet of realty at an average of Rs 45 per sq. feet. By 2010, PRIL’s stores will be occupying a total of 30 million sq. feet. Also, he wants 40 million sq.ft more under Pantaloon’s real estate funds business.Mr biyani is on a buying spree.

Also, Pantaloon is expanding more and more into Communication and durables. He plans to increase the share of food sales as well. Pantaloon is also looking forward to the group’s financial services business to generate significant cash flow. Reliance , on the other hand is planning to put $2.4 billion in equity. Biyani is also looking forward to split his business and raise money separately for each.

Reliance Retail is looking to open 5500 stores across the country, investing $2.24 billion and plan to have 50,000 employees.

Shopper’s Stop is expanding department store, books and music retail, Hypercity format. Also, new formats are coming like Mothercare, Home stop and MAC.

Metro Cash and Carry is expanding. Bharti is planning to enter retail starting with agri-produce retailing possibly in collaboration with an overseas retailer like TESCO.

Biyani is in talks to sell a little under 20 % stake for around Rs 180 crore in Home Solutions Retail India , the company that will be launching Home Town stores.Central, which aims to provide a premium shopping destination built around big brands, is being made into a separate company. Big bazaar could follow suit.

The scale and scope of Biyani’s plans will require a lot of senior managers as well.

To decrease costs, the company is establishing bases in the Middle East, Hong Kong and China to source globally as compared to its current model which relies heavily on local sourcing.

Also, now Mr Biyani wants to hold and control everything, be it the real estate and he wants to control his vendors, his merchandise and his consumer. He is setting up a realty funds, a private equity fund, creating his own portfolio of branded products, a lending arm and is building 2 million sq. ft of warehousing space and setting up a logistics business. He is even setting up his own advertising company.

To generate cash, Mr Biyani is also looking to lease out the malls as he has done in Mumbai.Future Capital would provide GE money like counters to help fund purchases. To help its vendors keep pace, Pantaloon provides them with necessary managemant and financial support via the group’s private equity initiative, the $400- million Indivision fund.

Biyani is into retail financing and funds managing. His Future Capital Holdings is into marketing credit cards, personal loans etc. its also into distribution of mutual funds.Also on the anvil is $200 million-250 million hospitality funds. This will set up a chain of 3-4 star hotels pan India and will launch hedge Funds.

Biyani wants to own many brands in his stores.Biyani’s empire is being restructured into 5 segments, Retail brands, Capital, media, Realty and Logistics.

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