Dearth of land in cities, lack of well-managed shopping malls and ideal retail shop locations may pose hurdles to multinational retail chains opening stores in India.
?Opening up the sector won’t eliminate the real estate and infrastructure problems,? said Raj Jain, managing director and chief executive, Bharti Walmart, a joint venture between the world’s largest retail chain, Walmart, and Bharti Enterprises. The government on Thursday allowed multinational retain chains to own up to 51% stake in Indian multi-brand chains and 100% in single-brand retail chains, with riders.
?Roughly, 40 shopping centres and malls are slated to come up in 2012, many of which have already been booked by tenants,? said Shubhranshu Pani, managing director, retail, at Jones Lang LaSalle (JLL), a global real estate consulting firm. ?The remaining 10% is not conducive for retail.?
?The new spaces will become operational only after 12-36 months, and the actual impact of FDI in front-end retail will be felt from 2013-14,? he added. The Walmart-Bharti joint venture owns 12 cash and carry stores and Tesco acts as a back-end supplier to its partner Trent as the government until now restricted their investments to such formats.
Expansion will be tough as India lacks well-managed malls. ?The biggest challenge for international retail chains is to find well-managed shopping centres,? said Anshul Jain, India CEO of DTZ, a global property advisor. ?Instead of looking out for suitable catchments, they need to design suburban retail parks of international standards, but land cost will be a huge challenge.? Many retail chains are under financial stress as fewer customers spend money to purchase goods after inflation shot up in the past few months and fear of an economic slowdown makes them money savers than spenders.
Rapid expansion for large retail chains will be a challenge as anchor tenants need to sign advance agreements with builders anywhere between two to three years. ?We’re not rushing to sign up anchor tenants,? said Kishore Bhatija, director and chief executive, Inorbit which owns 10 malls. ?We buy real estate at market prices, but earn depending on the retailer’s capability to do business.?
?A number of retailers have gone overboard in expanding and have not achieved the desired scale,? he added.
Real estate experts say with increased demand for space from retail chains, supply will be a constraint. “Real estate is always a scarce commodity in retail,” says Pani of JLL. ?In the next two years, we expect a flurry of activity in standalone sites where developers will follow a ‘built-to-suit’ model for every new entrants.?
?With more foreign capital flowing in, nearly 10-20 million square feet from standalone locations will be churned out for retail every year,? a JLL report shows. It also expects a ?mixed model of retail? to come into vogue in the metros and big cities, where shops will be present on the ground floors of residential buildings and offices. ?Developers are keen on adding a retail component to their properties and offering mixed amenities to consumers,? said Pani.