Retail News Update

NEW DELHI/BANGALORE: Reliance Industries chairman Mukesh Ambani’s deal-making spree to get the best domain expertise in the retail sector is poised for the big one now. His retail arm, Reliance Retail (RRL), is locked in ‘substantial’ discussions to float an equal joint venture with iconic UK fashion retailer Marks & Spencer (M&S) for apparel, gourmet food and cafes, multiple sources familiar with the situation said.The deal, slated to be clinched in the next three weeks, would see the UK retailer bringing in new formats like food and cafes into India. M&S’ core business – apparel and lingerie – is already operational in the country.

According to a source close to the deal, the gourmet food format is likely to be integrated with Reliance Fresh “wherever possible,” (upmarket localities) as a shop-in-shop format. This would help M&S get immediate scale in food business. There are 491 Reliance Fresh stores that sell food, FMCG and fruits and vegetables and this figure is likely to touch 1,400 by the end of next fiscal.

“The implications of this particular JV are much deeper. It’s much more holistic in nature and therefore taking long to seal,” the source added.

The $16-billion M&S, operating in the country through a franchisee arrangement with Planet Retail since 2001, is in the midst of charting a new India strategy aimed at accelerating expansion in the domestic market. It recently slashed prices by 20% to attract more footfalls in the stores and taking prime space in malls to open more stores.

Planet Retail was earlier a 51:49 JV between Indonesian NRI VP Sharma and Pantaloon Retail. The JV has now been called off and the brands that it was managing has been divided into fashion (Sharma) and sports (Pantaloon).

Indian government allows foreign retail companies to invest up to 51% in Indian retail companies on the condition that they sell goods under a single brand. It also allows 100% foreign investment in wholesale business. What it still does not allow is foreign investment in companies that sell goods of more than one brand directly to consumers.

The fear is that such a move would kill small grocery businesses – the mainstay of everyday shopping in India. So, while Starbucks, Louis Vuitton and M&S are allowed to come in as they sell goods under a single brand globally, Carrefour and Wal-Mart are not allowed to sell to consumers directly as they sell thousands of brands.

Informed sources said the senior Ambani’s core team has made significant progress in its talks with M&S, which also had preliminary engagements with other Indian corporates like AV Birla group, Mahindras, Trent and even the audit firm Lodha &Co.

Clair Foster, M&S’ spokesperson in London, declined to comment on market rumours. The UK retailer operates more than 20 stores in India out of the 760-strong network globally. M&S recently set up a business development team in Bangalore under senior executive Spencer Sheen to rework the India gameplan.

Sources said M&S would settle for a 50:50 JV with Reliance, in a marked departure from its earlier stance that it would like to keep the maximum permissible 51% stake under FDI regulations in single-brand retaiing. Troubled by stagnant growth in matured markets, M&S is looking to rapidly scale up operations in expanding economies like India and China.

M&S may have found a match in Reliance, which is carrying out one of the most ambitious retail rollouts in this part of the world. For Reliance, the UK retailer’s stature as a leading global mid-market fashion trend-setters will augment its key apparel retailing vertical.

In context, it may be mentioned that Reliance has adopted a pragmatic approach of floating joint ventures that may help bring in critical domain expertise or a definitive brand edge. Its JV with Citigroup for retail financial services, and another one with US home improvement company Lowe are pointers in this direction.