Riding the retail wave

Updated: Nov 29 2006, 07:24am hrs
The Bharti groups tie-up to start its retail operations in India with the worlds largest retailer, Wal-Mart, promises to bring global best practices in supply-chain management and sourcing to the domestic market. Wal-Mart brings into play its legendary cost-effective procedureshowever controversial they may be for running aground suppliersin back-end operations. With Bharti planning to leverage Wal-Marts store management skills for front-end operations, together they make a combination that would be just the right challenge for pure-play domestic retail majors like Reliance Industries, the Aditya Birla group and the Tata group to raise their capabilities to global levels. And they will have to do so in double quick time. Ironically, Wal-Mart, having planned its rollout within seven to nine months of Reliance Retail, will ensure that Indian consumers get the best retail experience: large formats, discount stores, international products and rock-bottom prices.

The flipside is that Wal-Mart happens to be among the most hated organisations in the world for its monopsony powers. Its phenomenal growth and ruthless sourcing strategies have America debating whether its time to break up Wal-Mart. Monopsony powers allow buyers to dictate pricing to suppliers who have little choice but to acquiesce because of their dependence on the buyer as well as the buyers clout in the market. Nearly 20% of all retail sales in the US are at Wal-Mart. Globally, Wal-Mart is four times the size of the second largest retailer by revenue. Wal-Mart reported revenues of $312.4 billion in 2005-06, while Indias total retail market is estimated to be only around $300 billion.

Against this backdrop, many domestic retailers debate whether India has created a Frankenstein. But in a fast globalising economy that question must be given a respectable burial. Progressive elements must welcome the tie-up for its potential to dramatically transform the domestic retail landscape. Theres a case for consolidation in the Indian market given that India has the highest number of retail outlets8-10 million as against 1 million in the US. The race among the top five or six players for marketshare promises a wave of job opportunities across the country. Only 8% of our population is engaged in retailits over 20% in the US, the worlds largest retail market. In India, per capita retail space is just 5 square feet. In the US, its 13 square feet. Nearly all parameters indicate a coming retail wave. This is the time to ride it, not kill it.