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Walmart’s Wait & Watch Game
Wal-Mart is in no Hurry to up The Ante in India. The Retailer is Expanding and Strengthening its Wholesale Business, Hoping to Leverage those Strengths in The Future when Multi-Brand retail opens up.
Issue Date - 21/07/2011
These are interesting times for organised retail in India. Even more so for Wal-Mart, the world’s largest retailer and the largest listed company by revenue (roughly $422 billion in sales last year). The Bentonville, Arkansas-based Wal-Mart knows that India - which it entered in 2007 through a 50:50 joint venture with Bharti Enterprises - is critical to its ambition to further grow its lucrative global business. Already 26% of the company’s revenue comes from outside the US. Wal-Mart’s international business clocked more than $100 billion in revenue last year, expanding by more than 80% in the last five years.

Indubitably, India is a big pond for big fish Wal-Mart. But there’s a big catch. Wal-Mart’s strategy hasn’t really worked well outside the North and South American markets of Mexico, Brazil and Canada. In most major Asian and European markets like Germany, South Korea, Japan and China, Wal-Mart hasn’t exactly lived up to its formidable reputation as the world’s mightiest and meanest retailer. After entering Germany in 1997 through acquisitions, it exited the market in a jiffy in 2006 (less than a decade), owing to intense competition from the likes of Metro AG. Clearly, its brassy American ways failed to find favour with the Germans. A more or less similar set of circumstances forced it to close the doors on South Korea in 2006 (again, in less than a decade). In Japan, too, Wal-Mart has had a spotty performance so far, failing to live up to any lofty expectations. Its ELDP (Every day low price) scheme is not finding favour with the Japanese, who are ready to pay higher prices for quality. The story in China is not so happy either where its profits and sales are reportedly declining, creating survival issues for the company.

These developments have certainly dented Wal-Mart’s confidence, forcing a change in its strategy. The company is more cautious now about entering new markets. It has learnt its hard lessons. The aggressiveness - entering new markets by buying out local competition (like in Germany and South Korea) - is now tempered with a new-found mellowness and it now sees virtue in the wait-and-watch approach to new markets before taking the plunge.

Wizened to the ways of the new markets and armed with some hard-nosed learnings it entered India through an equal partnership. The logic was unimpeachable. A $1.3 trillion economy, with a 1.2 billion billion population, an expanding middle class (growing in riches and getting brand-conscious by day), India’s $450 billion retail industry is the fastest-growing sector of the economy with sales expected to grow at more than 30% till 2014. Yet, India remains one of the last untapped major retail markets (organised retail is less than 5%). In fact, among the 30 largest emerging markets, India ranks the third-most attractive, according to a recent report by consulting firm AT Kearney. Business Monitor International, a London-based agency in the field of industry research, says retail sales in the third-largest Asian economy might grow to $785 billion by 2015 from $396 billion in 2011 if FDI restrictions are eased soon. Currently, India limits overseas investment in single-brand outlets to 51% and 100% in cash-and-carry stores, which can only sell to other retailers and dealers. But most international retailers are gunning for opening up of the lucrative multi-brand retail, which the Indian government has vetoed so far fearing backlash from mom-and-pop store operators, who constitute 70-80% of the retail Indian market.

But things might change soon. And Bharti Wal-Mart is getting more and more aggressive about its India plans starting 2011. This is partly because of the increasing competition in the wholesale retail space as more international and domestic players enter the fray and partly due to the anticipation that government might further open up the retail sector soon. If that happens, it will give a big fillip to Wal-Mart’s ambitions of entering the multi-brand retail space in India.

In the meantime, competition is already hotting up in the wholesale retail space. Paris-based Carrefour SA recently opened its first wholesale store in New Delhi through its partnership with Indian leading retailer Future Group, and plans to open more than 150 stores by 2015. Similarly, Britain’s Tesco Plc plans to open its first wholesale store later this year, along with the Tata Group’s retail arm Trent. Germany’s Metro AG, the first global retailer to be in India since 2003 already has six such stores, and is gearing up for rapid expansion with plans of opening 50 wholesale stores by 2015. Indian players like Future Group, which already runs more than 160 Food Bazaar stores, and Reliance Industries are aggressively planning to enter the wholesale market too (it already has a partnership with Marks & Spencer for single-brand retailing).


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