Bharti to take Walmart ties to shop front

Written by Rishi Raj | New Delhi | Updated: Nov 26 2011, 07:12am hrs
With the government deciding to open foreign investment in multi-brand retail, the first global chain to have a presence in this segment could be the US-based Walmart Inc. Bharti Retail, a wholly-owned subsidiary of Bharti Enterprises, has said that it will now initiate talks with Walmart for equity partnership in its front-end stores, easyday. Rajan Bharti Mittal, vice-chairman and joint managing director of Bharti Enterprises, told FE in an interview that with the opening of multi-brand retail to foreign investment, it is a natural progression to initiate talks with Walmart for investment in easyday stores.

We will definitely get into discussions with Walmart for investments in Bharti Retail now, said Mittal. It is a natural progression of our partnership in the back-end retail infrastructure. We were the first to bring Walmart into the country and our target of opening 15 cash-and-carry stores (back-end wholesale stores) by 2015 has already been achieved. In fact, by next month we would have opened two more stores. This best signals how strong our partnership is going and therefore talks of investments in front-end stores is a now a natural corollary. It is logical.

Bharti and Walmart entered into a strategic partnership in 2007 wherein the two have a 50:50 joint venture in running cash-and-carry stores. In this segment, regulations permit 100% foreign direct investment (FDI). Since FDI in front-end retail stores was not allowed till now, Bharti Retail wholly owns and manages the easyday stores.

Mittal, who hailed the governments decision to allow 51% FDI in multi-brand retail and allowing global retailers to own 100% subsidiaries in India in the single-brand format, which was earlier restricted to 51%, made light of the restrictions put by the government.

For instance, Paris-based Carrefour is struggling with dwindling sales. Carrefour announced a 35% drop in profit for the fist half of 2011 amid slowing sales in its home market of France, which contributes 43% of the world's second biggest retailer's turnover. The retailer is understood to be currently reviewing its retail format.

Arvind Singhal, the chairman of retail consultancy firm Technopak Advisors, says India may not see much investments in the next six months to a year because of the prevailing economic atmosphere in Europe and elsewhere.

I think in the current environment, even if they believe in the India story, they may defer their plans as they have other challenges at home to look into, Singhal said. People tend to be conservative in challenging times.

A close look at the growth path of big global retailers such as Walmart and Tesco best reflects the pace of investments one can expect. It took the world's largest retailer Walmart 49 years to develop a network of 9,029 stores across the globe and according to the company's annual report, it developed about 458 stores worldwide this year.

Experts say that since retail is a state subject, many of the retailers will wait to see how the whole political opposition from some states pan out before they take the plunge. Memories of Reliance Retail being booted out of Uttar Pradesh don't particularly evoke confidence among investors.

Many players will wait and watch as nobody wants to be the first to face the problem, says Abhishek Malhotra, a partner at Booz & Co.

On the other hand, many other experts say, tapering sales in developed economies would surely prompt such companies to look at countries like India to boost sales and for their future growth.

The monthly retail sales data released by the US department of commerce show that the retail sales were up 0.5% for October compared with September, while the year-on-year growth was a high 7.2% owing to the base effect.

However, the next few months will decide if growth is actually here to stay. On the other hand, India's retail market is expected to grow by 7.5% year-on-year for the next four years to touch $675 billion from the current size of $470 billion.

Meanwhile a large number of Japanese and South Korean retailers are actively studying the Indian market. Japanese and Korean retailers have not been traditionally attracted to the Indian market but there is an increasing likelihood that

they comprise a bulk of foreign investment in retail, given the saturation of their home markets, Mishra of E&Y said.

Multi-brand retailers would have to grapple with the tough task of finding a local partner. For example, Carrefour has been in talks with more than a dozen Indian companies from Bharti Enterprises, the MGF Group and DLF to the Future Group for a possible alliance, without much success.

Single-brand retailers don't have to go through the hassle of scouting for a partner. However, if they wish to have a fully-owned subsidiary in India, it would take at least years to put a team in place and line up the properties in India, a tough task in the country.

Indeed. Sweden's furniture retail giant Ikea says its thrilled by the decision to dismantle the sectoral cap on FDI in single-brand retailing; however, it will take at least three years for the company to actually open its first store in India.

Singhal of Techopak says the big-ticket investment would start coming from 2014 onwards and he expects India to attract anywhere between $2 billion and $5 billion every year for the next several years after that.