Pantaloon plans major expansion drive even as Reliance goes slow

Even as Reliance Industries Ltd’s Reliance Retail venture said it
would have a tough time meeting ambitious targets for expansion,
Pantaloon Retail India Ltd, India’s largest listed retailer, said it will
spend Rs800 crore to have 10-11 million sq. ft space for the year
ending June from the current 6 million sq. ft retail space.

The expansion will help Pantaloon compete with large domestic
and international companies entering the retail space, chief executive
Kishore Biyani had said at the company’s 20th annual shareholders
meeting on Thursday.Those competitors include Reliance Retail,
which has faced mounting protests in several states over its expanding
retail presence.

The company said on Thursday that meeting its target of 100 million
sq. ft of retail space by 2010/11 would be difficult after protests forced
the closure of some stores.

“It’s a tough challenge at this point of time but we certainly think we
would make a good go at it,” said Bijou Kurien, president and chief
executive of the lifestyle segment, referring to a target set last
November. The company currently operates more than 390 stores
in 16 cities, spanning 1.5 million sq. ft.

But in October, Reliance ended the services of about 400 franchisees
for planned operations in West Bengal state and has shelved a roll-out
in neighbouring Orissa because of protests from small traders, who fear
major job losses.

Reliance Retail in September laid off 1,000 staff in northern Uttar
Pradesh after the state shut 10 Reliance Fresh supermarkets following
similar protests. By spending more than $5.5 billion (Rs21,615 crore) on
its retail venture, the firm had planned to open about 500 Reliance
Fresh supermarkets in the Communist-ruled West Bengal and about
150 in Orissa. “2008, 2009 and 2010 would be the three critical years
in terms of property addition so far as we are concerned,” said Kurien
at the launch of the company’s first jewellery store in Bangalore.

Modern retail faces political obstacles in India because of fears millions
of small shopkeepers could lose their jobs in the fragmented but fast-growing
industry that is forecast to double in size by 2015 from an estimated
$350 billion.

India limits foreign multiple-brand retailers to wholesale or franchise
and licence operations. Talk of easing foreign investment rules have
cooled in recent months, prompting Tesco Plc. and Carrefour SA to
cool India plans.

Large Indian firms, including the Tata Group, the Aditya Birla group
and RPG Group have been stepping up investments to tap growing
consumer spending in Asia’s third-largest economy. Kurien said
Reliance Retail plans to open 300 jewellery stores across India in
the next three years.

Meanwhile, asked by several investors how Pantaloon would deal
with competition posed by large companies such as Reliance,
Pantaloon’s Biyani said: “We should not worry about competition
because the market is expanding. We are looking to create a dominant
position in the eight big cities.”

He said the company would seek to set up more stores of the existing
chains and its other brands to the metro cities to get a head start
on competition. “Our first-mover advantage will be big,” Biyani said.
“Retail is a business where you learn doing and others will go through
a learning curve.”

The company’s current 75- store discount hypermarket chain, Big Bazaar,
will get to 100 stores by February and 120 by June, he said. It will also
add four stores to its six Brand Factory stores—its discounted brand
store—and 20 E-Zone stores—its consumer durables and electronics
store chain— to its current seven stores.

An Interview of Future Group's MD Kishore Biyani

In an interview with Chief Correspondent Syed Firdaus Ashraf, Biyani,
the founder of the modern retail group Big Bazaar, has redefined the
shopping for Indian consumers, gives his vision for the retail industry
and his company's plans in the coming years.

Why did you say in your speech that 2009 will be the defining
moment for Indian retailing industry?

All the new malls that are in the anvil will be ready by then. We will
also have a retail policy in place and consumers too will be ready by
then, so we are ready for interesting times. We will see lifestyle
retails, high-end retail. Every retailer will be in the market. So,
2009 will be deciding factor for the retail market in India.

Will the bubble burst?

We have too many retail forums and too many malls have come up.
The period to watch out for will be 2009 and it will be a testing time
for retailers, I feel. We will all know by then what the real demand is
and what the real supply is in the market. In the meantime, the
challenge will be to find the right kind of people and trained people
for the industry.

You mentioned in your speech at the India Retail Forum
that the rising realty rates in India will be a challenge
to the retail industry. Can you explain the rationale?

The consumer always saves money when there is inflation. He spends
less when things are expensive. Inflation affects the consumer's
psychology and people now tend to save money in such scenario and
not spend. It has been observed that when real estate prices keep going
up people tend to save and the consumption drops automatically.

Why have you started credit card banking and how is
the response?

It is only 45 days old and the response has been good. It is one of the
future ways of the retail market and a learning business for us. We
are learning it. We have given loans to 500 customers so far. We are
learning while we are doing our business.

What has the learning so far?

(Laughs) The first applications are always those of fraudsters.

What kind of potential do you foresee?

There is a huge potential and we have just begun. We are creating
our checks and balances. In the last 45 days we have learnt a lot
on who is a trade-worthy customer and that is a business secret.

You mentioned that there are two Indias today. The first
one are those people who have power to spend and the
second one are those who are dependant on them like
drivers, cleaners and housemaids. Can you explain this?

Today, only one India is growing. The people who have aspirations
and brains, they are the big consumers of retail market. This class is
not making the other India grow. Lot of people have to do a lot of
things to change the scenario. One option is that those who have
a good income will have to create an income for the India that is
left out. I call that group as the second India. They have to be
protected in a network and we need to give them a chance to grow
and become one of the consumers.

You once said that social security system is bad in India
and that needs to be improved...

Today, India's social security system is a family security system.
People save money for bad days but if you compare that with
developed countries people spend money because they know that
their government will look after them in bad days. They are not
afraid of spending money in the developed countries. In the same
way we need to create a system in India where people should not
fear to spend money and not bother about their insecurities.

What can private players do in such situation?

The only solution to this problem would be to raise income levels.
If we do that, then everybody will have spending power.

Do you think the real estate market has reached its peak
and will crash?

I cannot comment on it. I would however say that this is a game of
supply and demand. Price correction will always be there in such
situation.

You said that you are approaching the Brazilian and
Mexican ways to develop retailing business. Can you explain?

Every retail shop has domestic finance scheme in some cities of
Brazil and Mexico. We are also looking at that model. If you study
their trend then you will find that there is 6 percent default and
I feel it is okay because 7 percent default is the norm in credit
cards too.


What are the products that can be funded?

Lot of products can be funded. We have started with some products
initially but eventually the idea is to fund consumption as much as we can.

Do you believe in customer brand loyalty?

I believe there is something called emotional attachment to a brand.
People do switch over their loyalty at times. I feel that these days,
maintaining brand loyalty comes with a cost. I personally believe
that the customer is like a nomad. He will go from one store to
another store. He will only come to you if you give him value.

How did you crack the shopping woman's psyche so that
they eventually end up spending in Big Bazaar shops?

(Laughs) We keep women in mind. We work with them. We understand
their emotions and therefore they end up spending in Big Bazaar.