Retail News Update

NEW DELHI: Lowe’s, the second largest multi-brand home improvement company worth $50 billion, is close to sealing a ‘Bharti-Wal-Mart’ type of partnership with Reliance Retail. The US company that is giving the largest home improvement chain — Home Depot — sleepless nights, is stepping outside North America and Canada for the first time.

“Talks between Reliance and Lowe’s are at a fairly advanced stage although the proposal hasn’t gone to the boards of the two companies,” a source told ET. The plan is to have two companies: a cash-and-carry venture where Reliance is likely to have majority stake and a front-end retail venture, owned and managed by Reliance Retail,” a source told ET. Lowe’s operates both stores and distribution centres in the US.

Asked to comment on the joint venture with the American company, president & CEO in charge of operations and strategy in Reliance Retail, Raghu Pillai, said: “I have no comments to make.”

India is going through a consumer boom and foreign retailers are setting up shop here by licensing their brands to Indian partners amidst severe protests from local shop owners. Indian laws permit foreign investment up to 51% in single-brand retail and up to 100% in wholesale business. However, multi-brand retailers (mostly food and grocery and consumer durables) like Wal-Mart, Home Depot, Tesco, Carrefour and even Lowe’s are not allowed to own and manage stores in India.

All they can do is set up cash-and-carry stores and sell their wares to other retailers or license the brand to an Indian partner. Some like Wal-Mart and now Lowe’s have chosen to set up cash-and-carry stores with influential Indian partners, while others like Tesco have decided to wait.

Lowe’s, which is witnessing exponential growth in the US and adding dozen of new stores, sells everything a home requires. It’s a one-stop-shop offering products and services for home decorating, maintenance, repair, remodelling and property maintenance to individuals and institutions.

The products offered by the stores under various brands include kitchen appliances, lumber, flooring, millwork, paint, building materials, fashion plumbing, lighting, tools, lawn and landscape products, hardware, seasonal living, cabinets and countertops, outdoor power equipment, rough plumbing, rough electrical, nursery, home environment, walls/windows and home organisation.

A source said even Reliance has big plans in the home decor and home improvement space given the rapid pace with which Indians are building homes and doing them up. It feels the niche segment can take off in a big way at right price points. Although the Indian company has announced Rs 25,000 crore worth of investments to build a pan-India retail network across segments, it lacks bandwidth to execute large-scale retail operations, especially in niche segments.

So, the prospective joint venture is in keeping with Reliance Industries chairman, Mukesh Ambani’s, new vision of forging joint ventures and alliances across the retail spectrum for global expertise. If this JV goes through, it would the first between Reliance and any large international chain.

In India, it’s the small-to-medium enterprises that are involved with these businesses and it remains to be seen how they react to Reliance’s foray into this segment. A source said more such JVs, which could range from eyecare to luxury apparel brands to cosmetics, are in the offing. Some alliances are likely in the footwear segment as well. The idea is to get the best practices, technology and products which would help build scale in each of the verticals.

Lowe’s, for instance, handles 12 million customers a week at more than 1,450 home improvement stores in 49 states. In 2006, the company reported revenues of $46.9 billion and net income of $3.1 billion. Around 92% of Lowe’s employees are located in stores and 6% are at distribution centres.

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