[lbo-talk] Indian Energy Company Will Invest Billions in Retailing

Sujeet Bhatt sujeet.bhatt at gmail.com
Tue Jun 27 22:52:24 PDT 2006


http://www.nytimes.com/2006/06/28/business/worldbusiness/28retail.html?_r=1&oref=slogin

The New York Times

Indian Energy Company Will Invest Billions in Retailing

By SARITHA RAI Published: June 28, 2006

BANGALORE, India, June 27 — Reliance Industries, a major Indian energy company, announced on Tuesday that it would expand into retailing with a $5.6 billion investment and a plan to add hundreds of thousands of employees in the next few years.

The announcement comes as analysts expect India to relax rules that block foreign investment, thereby allowing the entry of global players like Wal-Mart, Carrefour and Tesco, which are already beating a path to the door.

Mukesh Ambani, chairman of Reliance Industries, told shareholders at the company's annual meeting in Mumbai that the company had set up a subsidiary called Reliance Retail, with the first of 5,500 outlets to open later this year in the Western Indian state of Gujarat.

Soaring economic growth and an increasingly affluent middle class have made India an attractive market for both domestic and international retailers. "India is at the peak of attractiveness for retailers right now, with a $350 billion retail market expected to grow 13 percent this year," said Fadi Farra, a principal at A. T. Kearney's Consumer Industries and Retail Practice.

Spurring overseas interest, India decided this year to allow direct foreign investment of up to 51 percent by single-brand retailers, resulting in the entry of companies like Tommy Hilfiger, Nike and Timex. Currently, foreign retailers with multiple brands cannot own stores in India although they can make franchise agreements or run wholesale operations. Companies like Wal-Mart are lobbying heavily to have those rules changed.

Some Indian politicians oppose moves to encourage foreign retail investment in the belief that it will lead to job losses and drive smaller stores and fledgling domestic chains out of business. For now, because of the current restrictions, homegrown companies like Pantaloon Retail, RPG Retail and the new Reliance Retail have a head start.

Reliance plans to sell food, clothes, footwear, durable goods, home furnishings, farming items, travel services and health care products, along with educational and entertainment products and services. The company is also in talks with luxury brands like Giorgio Armani and Manolo Blahnik to carry their products.

The company plans to have a presence in 1,500 Indian cities and towns, with formats to include neighborhood convenience stores, supermarkets and specialty stores.

In India, large shopping malls and well-stocked supermarkets are still relatively new to most shoppers, who tend to make their purchases at neighborhood mom-and-pop stores — kirana, or grocery stores, as they are referred to locally. According to A. T. Kearney, India's top five retailers together still account for less than 2 percent of the modern retail market.

"Organized retailing will be an overarching theme of the expansion and growth of Reliance in the near future," Mr. Ambani told his shareholders. Reliance Retail currently has a work force of 2,200. The company said it planned to recruit 500,000 workers in the coming years and train them in product knowledge, technology and customer service.

Investors signaled their approval of Reliance Industries' plans yesterday, with the share price rose more than 4 percent.

"There is no doubt that Reliance can pull it off," said Nikhil Vora, vice president of research at the Mumbai-based brokerage SSKI Investor Services. "How soon will depend on how aggressive they are."



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