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INDIA’S TOP RETAILER READY TO FACE OFF WITH FOREIGN CHAINS

By Ed McKinley

Kishore Biyani, managing director of the former Pantaloon Knowledge Group, is working to make himself the Sam Walton of India, observers say. But as the country’s government loosens restrictions on foreign retailers, Biyani and his company may have to face down Walton’s heirs and a host of other competitors seeking a share of India’s $330 billion retail market

“It’s a race against time,” said Fadi Farra, a principal in the New York City office of A.T. Kearney, a global consulting business. Over the next two years, Farra predicts, the Indian government will gradually ease the barriers that have thus far prevented widespread foreign investment in retailing.

In March Pantaloon renamed itself The Future Group, a moniker that leaves behind its origins as a trouser manufacturer and focuses instead on its progressive expansion. If it wants to stay on top, Farra says, Future Group should consolidate its strength by grabbing prime locations and continuing to test multiple formats.

The company started out in Mumbai in 1987 as Manz Wear Private Ltd. It went public in 1991, changing its name to the first of several that would involve the word “Pantaloon.” Beginning with apparel, the company moved into general merchandise and groceries.

The largest divisions include Pantaloon, a department store group; Big Bazaar, the company’s name for hypermarkets; Food Bazaar supermarkets; and Central Mall, a more upscale aggregation of merchandise.

At press time Future Group was planning to open three Pantaloon department stores during the first quarter, bringing its total for that format to 21. The new Pantaloon stores are to average 20,000 square feet. Plans also call for launching two Fashion Station stores, the fourth and fifth of their kind, one of which was to cover 12,000 square feet and the other 19,000 square feet.

Further, the company aims to open four Big Bazaar hypermarkets, ranging from 25,000 square feet to 34,000 square feet, which would bring the total of these to 28. The company expected to open six new Food Bazaar stores in the same time period, at 6,000 square feet to 12,000 square feet.

Another of the company’s ventures is Central Mall, a chain of 15 department stores that offers a wide range of merchandise and also houses restaurants and nightclubs. The Future Group expected to operate 35 Planet Sports stores by the end of the year. Future Group also has obtained franchise rights to operate six Marks & Spencer stores in India.

In India 97 percent of the goods flow through very small retailers that sell without paperwork, often avoiding taxes and regulations, says Brenda Sternquist, a professor of international retailing at Michigan State University.

Among the modern retailers, Future Group towers above the competition, accounting for about 0.7 percent of all the merchandise sold in India, says Farra. He points out that India is Asia’s third-largest economy and the world’s second-biggest country in population terms, with upwards of 1 billion people. Future Group’s nearest competitor, Margin Free Market, lays claim to 0.2 percent of the nation’s retail business, he says.

Future Group’s sales for February rose 69.9 percent from the same month last year, while sales for the nine-month period ended in February climbed 92.8 percent from last year’s corresponding period.

Innovation has driven the growth. Future Group is among those credited with introducing value retailing to India, which many say was no easy task. Generally, Indian retailers cannot negotiate lower prices from wholesalers by buying in volume, says Sternquist. But selling about 70 percent private-label goods in Pantaloon department stores helped the company avoid that one-price drawback, she says.

Private label or not, owned or franchised, and whatever the format, Future Group stores vary greatly. A Big Bazaar store in one city could differ significantly in size and merchandise from its counterpart in another city, says Sanjay Dutt, executive director of agency services in the Mumbai office of real estate services firm Cushman & Wakefield. Much of that variety only makes sense because of the significant differences in climate and local culture that occur across a nation as large as India, Dutt says.

Future Group stores look much like their counterparts in the West, Sternquist says. That kind of resemblance does not always occur in India, she notes, because many Indian retailers fail to learn the lessons that Westerners have incorporated over decades of modern retailing.

Even Future Group’s organized competitors sometimes lay out stores with product adjacencies that are more of an odd jumble than a logical flow, she says. Merchandise can seem out of place, too, she says, such as putting cosmetics in a food store.

Future Group markets its stores as having a strong streak of “Indianness,” though some outsiders question that claim. The company points to a policy of allowing customers to pick up and examine produce in Food Bazaar stores as an example, but skeptics note the overall Western nature of the stores.

Perhaps the biggest challenge to that entrepreneurial spirit is the shadow of Wal-Mart Stores, which recently established a sourcing office in India. Farra says the office would serve the same two purposes as any such office: to begin buying wholesale goods in the country, and to learn more about the consumers in preparation for establishing stores.

Sourcing in India could give Wal-Mart the power to push the government into relaxing rules that keep the chain from opening Sam’s Club stores there, says Sternquist. India probably intends to adopt free-trade policies soon anyway, to gain entrance into the World Trade Organization, she says.

India has already begun allowing construction of stores by foreign “single-brand retailers,” those willing to operate stores that sell only private-label goods. And chains that can operate that way are showing interest, says Farra.

Besides the avowed interest of Wal-Mart and other foreign retailers, India is seeing a movement among domestic conglomerates to branch out into retailing. Indian companies that have made their fortune in energy or telecommunications have access to the capital needed to plunge into retailing in a big way. Organized retailing has remained stunted in some ways in India because the government does not recognize retailing as an “industry,” and thus loans can be hard to come by for some retailers, Sternquist says.

Another wild card is the internal tariffs. Indian states levy taxes on goods transported from one state to another, a practice that has confined many retailers to a single jurisdiction, Sternquist says. A national value-added tax proposal that is much under discussion could replace those tariffs, but this is not certain, sources say.

Whatever happens, Future Group’s Biyani is on record as saying he is ready. His company got its start as one of the first organized retailers to cater to India’s burgeoning middle class, while others concentrated on the wealthy. Needless to say, Wal-Mart and many of the others set to enter will be competing for those very consumers.

Future Group seems likely to remain a force, though. After all, as its new name might imply, this company has been bringing the future to India for some time now.

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