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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Every revolution comes at a price, and as a retail revolution sweeps across India, it is becoming increasingly clear that organized retailers are up against some pretty steep odds.

Reports from last week of a fresh attack on Reliance Fresh (a retail chain promoted by conglomerate Reliance Industries), this time in the central state of Madhya Pradesh, show that of all the challenges modern retailers face in India, the backlash from the so-called unorganized retailers is potentially their biggest yet.

The latest attack on a Reliance Fresh outlet follows similar acts of vandalism against the chain in northern Uttar Pradesh, along with opposition in the eastern states of West Bengal and Orissa. In each case, politicians either directly supported the agitation or voiced opposition to the spread of organized chains, citing the impact on the mom-and-pop shops in the area.

The violence against Reliance’s chain may look like freak incidents sponsored by politicians with their own personal agendas and hungry for headlines. But the fears surrounding millions of retailers and their employees, of losing jobs or being put out of business, are real.

The country’s retail industry was valued at $300 billion in 2006, according to IndiaRetailBiz.com, and employed 21 million people — mostly in retail outlets that occupied less than 500 square feet. As larger, modern retail storefronts open up — sometimes anchoring the malls that seem to be springing up everywhere — and sell wares cheaper, offer a wider selection and deliver a better shopping experience, the relatively inefficient and unorganized sector will struggle against the organized chains.

It is likely that there are more occasions for friction in future, not less, and while several jobs will be created, many others will inevitably be lost. While political will is going to be tested at one level, industry associations probably will have to take a lead in starting a wider debate on the whole issue of modern retailing.

The loss of a livelihood is never an easy issue to deal with, but it will be retrogressive to prevent the evolution of a modern retail network with vandalism and violence.

The timing of the backlash against modern retail couldn’t have been worse for the organized industry. Foreign investment into the sector is still restricted, but there is no shortage of local players eyeing a slice of the potential market.

Rentals are reportedly going through the roof as existing chains expand or new ones enter the fray, escalating costs. Ditto with staff expenses, with the industry working to meet the increasing demand for managerial talent.

Revenue growth for the listed retailers such as Pantaloon Retail and Shoppers’ Stop has been furious over the past several quarters, and analysts expect the growth to continue at a fast pace. But the industry already works with wafer-thin profit margins — less than 5% in fact, while their stocks enjoy premium valuations of more than 50 times forward price-to-earnings estimates.

The last thing either the companies or their investors need is to be targeted for crime.

By V. Phani Kumar

Varahabhotla Phani Kumar is a reporter in MarketWatch’s Hong Kong bureau.

When contacted, a Reliance spokesperson told Indiaretailing: “It is not a reworked strategy or model. This is a new concept wherein we are trying to offer almost all the products that we have launched exclusively through various formats. It is quite natural that the Super store will also retail fresh produce and food and grocery.”

The company, which opened its first Reliance Super in Amritsar (approximating 13,500 square feet), is planning to open more Reliance Super stores across the country. When quizzed about the targeted number of Reliance Super stores for this fiscal, the spokesperson said: “At this point of time I cannot specify a number, but it would be huge and eventually spread across the country.”

It is learnt that the company will experiment with this new format in states where they face less protests, and would eventually move on to anti-retail playgrounds. Making it more shopper-friendly, Reliance Super provides easy and attractive finance options, including 0 per cent financing for purchases on select products.

Shoppers have the option to choose from a wide array of products in categories ranging from fresh produce, food and grocery, home care products, and apparel and accessories, to non-food FMCG products, consumer durables and IT, automotive accessories, lifestyle products, and footwear.

Reliance Super will also retail fine jewellery and fashion jewellery as part of its lifestyle section. Reliance Super also boasts of a host of Reliance’s own apparel brands in select categories.

Commenting on the launch of this new format, Raghu Pillai, president and CEO, Operations and Strategy, Reliance Retail, said, “The launch of Reliance Super is yet another step by Reliance Retail towards providing an international shopping experience to all our customers at unmatched affordability, guaranteed quality and choice of products and services throughout the week.”

Meanwhile according to reports, Reliance Brands, another subsidiary of Reliance Retail, is looking at becoming a private-equity partner to struggling companies and brands in the apparel, footwear and lifestyle segments. If our sources are to be believed, the company is also exploring routes for both national and international buyouts of brands.

However, for the time being, let us wait for the launch of its tenth format.

“We are hoping to touch a turnover of around $ 5-5.5 billion in home durables across all our formats by 2011,” Ajai Baijal, President & Chief Executive-Reliance Industries (CDIT business told PTI on the sidelines of the launch of its Reliance Digital store here.

The current domestic market size of home durables which includes consumer electronics, telecom and home IT is Rs 70,000 crore and “this is growing at 20 per cent per annum”, he said.

Baijal said the firm was looking at 150 Reliance Digital mega stores across the country including 10 in Karnataka by 2011.

Out of these 150 mega stores, 20-25 per cent will be in metros, he said.

“We will soon be launching one such store in Hubli and the other in Hyderabad”, Baijal said.

In fact, even a Reliance Retail spokesperson, when contacted, told Indiaretailing that “there is absolutely no such move by the company and it is all in the realm of speculation.”

Expressing surprise over the report, the spokesperson said “there has been no such move till now by the group.”

“Carrefour has held discussions with a large number of retailers in India over the past year and has now shortlisted three of them. The final partner will be announced in January,” the spokesman for Carrefour said.

Though the name of the final partner is still under wraps, the spokesman said the French retailer has formed two companies, Carefour India and Carefour WC and C (wholesale cash-and-carry), which will oversee operations in India with its joint-venture partner.

On the move to have multiple partners—like it has in China, the spokesman said, “China is a huge country and the circumstances are different in the two countries. As of now, we will be having only a single partner.”

Carrefour, which has shortlisted three Indian companies, is expected to announce its partner in January 2008 and launch its first joint-venture hypermarkets in India around mid-2009.

Top executives of the company have been visiting India and engaged in talks with a large cross-section of Indian counterparts to select a partner.

Asked about the plans for the hypermarkets, the spokesperson said, “These would be between 4,000 and 10,000 square metres. Of course, the location of these hypermarkets and other details would be worked out once the company finalises who its partner would be in this country.”

As the spokesman said, “Since India is a growing market and retail is catching up in a big way, it is felt that Carrefour would be able to give value to its customers in this country.”

The trigger was a recent meeting between Carrefour’s top team and a few executives from Mukesh Ambani’s office. Sources also indicated that a top Reliance team led by Mr Ambani’s close associate Manoj Modi is likely to go to France for further talks. “If it happens, it will be a global alliance. But these things take very long time to materialise,” said sources.
The exact contours of a possible Carrefour-Reliance tie-up is still unclear. But sources said that Reliance could well emerge as a potential partner for Carrefour’s cash-and-carry business in India. The deal might be akin to the Bharti-Wal-Mart arrangement, sources added, but this could not be confirmed.

For the past two years or so, Carrefour has opened up dialogue with a range of partners, including DLF, Parsvnath and the Wadia group. After a considerable soul searching on the tenure of its Indian strategy, Carrefour is said to have figured out that its Indian partner must possess three key strengths: a cache of prime real estate, undeniable clout with the government and a long-term interest in retail. Reliance scores on all counts. It has already tied up 30-35 million sqft area across the country.

And its ability to influence policy in the corridors of power remains unmatched. It is also committed to the retail business unlike real estate companies which are merely looking for lease or sell commercial space.

But there’s clearly one issue where, if a deal with Carrefour finally materialises, will come as a surprise. Reliance does not have a track record of partnerships. So far, India’s biggest private sector company has little experience in managing complex joint ventures.
Reliance Retail, when contacted, came up with a terse statement: “We won’t comment on speculation.” Sources said that the initial proposal for a possible alliance between the two giants was mooted by Carrefour and it was for a front-end retail venture in the country. However, it is understood that Reliance has not shown much interest in this and the two companies have decided to jointly explore a mutually acceptable model. “One thing is certain, Reliance Retail will not operate Carrefour-branded outlets,” sources added.

They also said that Reliance would mainly be interested in getting into a partnership with Carrefour on two fronts: strengthening its back-end in India and setting up retail operations in other emerging countries. For Carrefour, Reliance’s real estate bank and considerable clout would help immensely in building a retail operation.

Though Reliance Retail has been aggressive in its rollout of the front-end retail business, it is suffering significant losses due to problems in its back-end and supply chain. Also, the company is yet to open a wholesale ‘cash and carry’ store. If the company is able to strike an alliance with Carrefour in these areas, it can solve its supply-chain problems.

Perhaps, aware that the behemoth cannot single-handedly pull off its ambitions in retail, chairman Mukesh Ambani has already signalled a change in philosophy. In his speech at RIL’s 32nd annual general meeting last October, Mr Ambani had said that joint ventures and partnerships would be key growth drivers for the group in years to come.

He said Reliance Retail is building global partnerships with global leaders in all aspects of retail, including fast-moving consumer goods, health and wellness, apparels, electronic goods, lifestyle products and services, home and furniture, luxury goods and financial and advisory services. For the company, which had initially decided to operate completely on its own, this is a major departure from the past.

Interestingly, last month, a French newspaper had reported that Carrefour was looking at selling its discount supermarket businesses Dia and ED, which was subsequently denied by the Carrefour management.

Speaking to ET on the eve of Reliance Retail’s second TimeOut store in Gurgaon, Reliance Retail president & chief executive, lifestyle, Bijou Kurien said: “The tie-ups for speciality retail will be in non-food, non-FMCG categories such as apparel, footwear, consumer electronics, home and interiors and furniture among others.”

While declining to mention specific names of players Reliance Retail was in talks with, Mr Kurien said: “We are hopeful that the speciality retail ventures will be rolled out in the current calendar year.” The company proposes to set up stand-alone stores for speciality retail once the deals are formalised.

Reliance Retail is learnt to be in talks with US-based multi-brand home improvement player Lowe. Its first speciality retail store in partnership with Apple Inc, iStore by Reliance Digital, recently started operations in Bangalore.

Elaborating on plans for its books, music, stationery and toys stores under the Reliance TimeOut umbrella, Mr Kurien said: “The plan is to set up 45 TimeOut stores over the next three years.” The company, however, has not firmed up specific investments for TimeOut stores for the three-year period.

It is currently testing the TimeOut format with three pilot stores — one each in Bangalore and Guragon and a third upcoming one in Kochi. While the Gurgaon store has been set up with an investment of Rs 20 crore, Reliance Retail invested Rs 12 crore in the Bangalore store. 

Source: Ratna Bhushan, TNN, 25 Jan, 2008
 

For the first time, Hypercity Retail India Ltd, along with Shoppers’ Stop, has entered into a franchise agreement with the UK-based Home Retail Group, Argos, to offer multi-channel shopping experience to its customers.

Hypercity Retail India would offer this facility under the brand name of Hypercity Argos.

“This unique format of catalogue shopping is definitely suited for metros like Mumbai where retail space is expensive and has been a deterrent for retailers to reach out to a larger consumer base in a cost-effective manner,” Hypercity Retail’s CEO, Andrew Levermore, told media here.

Hypercity Argos’ integrated multi-channel capability encompassing stores, home shopping and the Internet, would provide consumers a new horizon to shopping, he said.

The firm has launched its business with five stores in Thane and would be opening more stores by the end of the first year, Levermore said.

“Convenience is a very important factor and if multi-channel shopping is being made available to a consumer, the initial response would come from the catalogue,” Shoppers’ Stop Managing Director, B S Nagesh, said.

Another retail chain, The Bombay Store, is also planning to provide this facility in the next few months.

“It is too early in India, although internationally it is a well-known concept. It will definitely take-off in the coming years,” Bombay Store Managing Director Asim Dalal said.

While he does not plan to launch catalogue-shopping immediately, he said, “We will be launching it in the next one year,” he said.

However, Mukesh Ambani-led Reliance Retail said it had no immediate plans to launch this offering.

“We at Reliance Retail are not planning catalogue- shopping in near future though it is a growing field. Major retailers should do well looking at the stupendous growth patterns,” Reliance Retail Head-Corporate Communications Manu Kapoor said.

Future Group CEO Kishore Biyani said, “We don’t believe in paper catalogues and have no plans to launch it in the near future.”

Though nascent in India, the catalogue shopping segment is huge overseas. The US market is estimated at around $180-billion while the European market is pegged at around Euro 50-billion.

Source : PTI

Reliance Retail’s consumer durable and IT format, Reliance Digital, is planning to launch the concept at its upcoming store in Gurgaon in the NCR region.

Tata’s Infinity Retail and Future Group’s e-Zone have already tied up with Microsoft to launch the concept as a pilot project at their stores.

Connected homes offers users the opportunity to connect all their consumer durables, electronic and IT products at home with their personal computer or laptops through Microsoft software such as Windows Vista and X Box, among others. The computer and the products are connected through wireless technology.

Reliance Digital will showcase the Microsoft products in a 500 sqft area in the store. Initially, it will be a pilot project and, depending on the success, the company is planning to open many such kiosks at Reliance Digital stores, which is eyeing revenues of Rs 20,000 crore (Rs 200 billion) by 2011, according to company sources.

At present, Reliance Digital has three stores and will have two more by March and aims to have nearly 50 stores by the end of the next financial year.

“If the pilot project succeeds, we will have the connected homes concept in all our stores,” said a Reliance Retail executive.

Reliance Retail has also tied up with Apple to open iStores in the country.

iStores sell Apple products such as Macintosh, i-Mac, iPod, and software and support services. Reliance Retail has three iStores and plans to launch 40 more in the next 18 months.

Tata’s Infiniti Retail has tied up with Microsoft to launch MS@Retail, a ‘connected homes’ concept at Croma outlets from October 2007. It was envisaged as a shop-in-shop pilot kiosk at Croma’s Juhu outlet.

“After the launch of the concept, we have seen a huge surge in our laptop sales. We are also planning to take it to our other stores,” said Ajith Joshi, CEO, Croma.

Croma has nine stores now and plans to add nine more in the next couple of months.

“The connected homes concept has gained popularity in the US and it will catch up in India, too, as users are benefiting from its usage,” said Joshi.

Future Group’s e-Zone, which tied up with Microsoft in January 2008 for its Hyderabad store, is taking the concept to its 28 other stores across the country, starting with a 30,000 sq ft store it is planning at Bangalore.

According to Manoj Kumar, CEO, e-Zone, “After the launch of the pilot, the sale of Microsoft products have gone up by five times. We are planning to take it to all our stores soon,” Kumar said. The company is planning to set up nearly 110 new e-Zones in the next 18 months.

After the success with Croma and e-Zone, Microsoft is believed to be taking the concept to all the major cities of India and ensuring its presence in major outlets.

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.