The government in India is preparing for an invasion by the French, British and Americans — but not a single shot will be fired. These countries, which once controlled a vast colonial empire, are now looking to mine India for its economic riches, in the form of a lucrative new retail market. For companies like Wal-Mart, which is tripping over itself in U.S. markets, the image of the Indian market has become tantalizing. This week, an Indian company, Reliance Industries, announced it would open a series of very small retail “neighborhood” stores with the lofty goal of becoming “Wal-Mart in India.” Reliance is trying to get a jump on Wal-Mart before they are allowed to open up in this country. The 11 new stores will be called “Reliance Fresh,” and will sell groceries and other goods. The company’s main business in India is petroleum refining, so this would be like Exxon opening up convenience stores in America. Reliance eventually wants to have 4,000 stores in 1,500 cities, ranging up to 150,000 s.f. in size. The prize here is the projected 300 million middle-class Indian consumers. “Indians are changing to consumers who buy from compulsion because they want something, not because of necessity,” a Reliance official was quoted as saying. “We want to reach out to more than 60% of the population in four years time,” the official noted. All of this activity comes as the Indian government makes moves to loosen up the rules to allow large foreign retailers to enter the Indian marketplace. Wal-Mart, France’s Carrefour (the world’s second largest retailer) and Britain’s Tesco, are all vying for the Indian consumers’ rupees. Up until now, India has allowed 51% foreign investment in retailing — but only by companies which sell a single brand. International retail chains which offer many brands are still banned from direct investments. Such companies can form a partnership, as Wal-Mart has done in other countries, like Japan, Germany and England. But the Indian economy has much to lose with the arrival of the big, foreign superstores. India’s retail sector is made up of small mom-and-pop street corner stores. Chain stores sales today in India make up just around 3 to 4% of the retail sector. India’s retail sector is projected to generate $637 billion revenue in 2015, more than double the $300 billion estimate for 2006. Wal-Mart said in July it would open an office in India to study the retail market. Wal-Mart has a sourcing units already set up in the country.
Wal-Mart today gets more than one-fifth of its income from outside of the United States. The American market is so saturated with Wal-Mart stores, that the company is routinely cannibalizing its own stores when it puts up a new supercenter five miles away, or closes down an existing discount store. So India and China represent vital new sources of revenue growth, and the best opportunity to lift its future stock prices. Although Wal-Mart has stumbled badly in places like Indonesia, South Korea and Germany, the retailer has cleaned up in Puerto Rico and Mexico, where smaller merchants disappeared. If the Indian government is foolish enough to allow giant foreign retailers to take over their retail sector, Wal-Mart will be among the first fools to rush in. For earlier stories, search Newsflash by “international.”
