Retail News Update

India’s economic growth is an exciting new playing field for the retail industry and for entrepreneurs looking to get in on the ground level, a panel of that country’s businessmen agreed.

Rising incomes, increased advertising, and a jump in the number of women working in the country’s urban centers have made goods more attainable and enticing to a larger portion of the population. At the same time, trade liberalization and more sophisticated manufacturing techniques create goods that are less expensive and higher quality.

A panel moderated by Harvard Business School professor V. Kasturi Rangan brought together veterans of the retail world to share strategies for cashing in on what could be a new wave of organized retail in India. The discussion took place April 4 at the India Business Conference at HBS.

Kishore Biyani launched the country’s first ready-made trouser brand in 1987 and diversified from there. Now, as CEO and managing director of Pantaloon Retail (India) Limited, he oversees thirty-two department stores in fifteen cities.

“Ordinary people are buying what the rich can afford,” he said, adding that a surprising number of consumers have accepted private label brands in a country where small, individual stores selling no-name goods have been the rule for decades.

But success doesn’t arrive overnight. Biyani cited a few factors to consider when launching a retail operation in India:

• Foreign investment is restricted.
• India’s culture favors saving, not spending.
• Real estate costs are high.
• The taxation and legislation system is complex and difficult to navigate.

Vijay Jain said he left a “cushy” job in investment banking to take advantage of the huge potential promised by India’s retail industry. In 2002 he became CEO of Intergold, a jewelry store chain with twenty-four locations in fifteen cities. The traditional consumer model in the market is the family jeweler, he explained, with a relationship between parties carrying on for generations.

The consumer in India is far more aware than he ever was.
— Vijay Jain, Intergold

Intergold, however, offers a different model that consumers are beginning to embrace. “Our outlets encourage browsing and we sell at a fixed price.” Jain cited a challenge familiar to any retailer in any country: difficulty managing inventory in a market where tastes differ from region to region.

“We’re trying to be the neighborhood store,” said Neel Raheja, executive director of the Shoppers’ Stop chain of department stores. Today the chain employs 1,500 at 14 stores and has ambitious plans to expand to 25 locations by 2005. Real estate, he admitted, is a significant challenge.

What about malls?

An audience member asked what advice panelists would give to an entrepreneur launching a retail business in India.

“Don’t try to copy any Western model,” said Biyani. “India might surprise you. Adopt a flexible model that captures the value chain and allows you to evolve with the customer.”

Jain said competition in India includes delivery services that bring items as inexpensive as a Diet Coke to a customer’s door in five minutes. “How do you work against that?” Noticing that there were few places to hang out (Starbucks hasn’t made it to India yet), he helped raise equity for two retail food chains, Café Coffee Days and Barista.

“It’s possible to adapt successful U.S. strategies to India,” said Raheja, “but you need a sustainable competitive advantage to survive.”

Adopt a flexible model that captures the value chain and allows you to evolve with the customer.
— Kishore Biyani, Pantaloon Retail

What is the mall’s role in the panelists’ businesses? “It’s probably not the right strategy for Intergold,” said Jain. Consumer research has shown that at least for now, Indians are unlikely to make a purchase at a mall that involves spending over $250. Intergold’s stand-alone stores have low walk-in traffic, but customers are more likely to make a purchase in the $400 and up range.

Malls are a better fit with the Shoppers’ Stop and Pantaloons model. “I have to be there,” said Biyani. “All of the new space in retail is coming through new malls being built.” There are currently five malls in India, with four hundred more in the planning stages. Raheja guessed that about two hundred will be built, and that 10 percent of those will be successful.

“Weather is an issue,” he said, referring to the monsoon season that makes shopping indoors an attractive prospect. There’s also an entertainment factor, he added—more and more Indians are beginning to see shopping as an enjoyable pastime.

Ground level opportunity

The forecast for branded products was somewhat mixed. There is plenty of opportunity for goods and services that offer new consumer concepts or new product qualities, but most Indians believe brands are more expensive—even when they’re not. It can be difficult for a new product to get over that initial hump with a customer, but Raheja estimated that the number of branded goods would grow from 2 percent to 20 percent of the consumer market over the next five years.

From a sector perspective, mall specialty stores that sell goods such as toys or watches should do well, said Biyani.

Moderator Rangan wondered if the organized shopping phenomenon was limited to the country’s urban centers.

“The consumer in India is far more aware than he ever was,” said Jain. It may take time for the “shop ’til you drop” mentality to take firm root in the cities and reach the country’s more rural regions. But panelists agreed that the retail industry in India would continue to undergo significant growth and change in the years to come. For entrepreneurs looking to get in on the ground level, the industry offers a wealth of opportunity.