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Why there is no need for great celebration or for deep despair over FDI in retail

uch has been said and written about what foreign direct investment (FDI) in retail can do. Depending on which side of the ideological divide is speaking, the assertions are either that it is a magic wand to fix many big problems or that it is a destrover of honest livelihoods, with little benefits of its own. What is common to both sides is that they are
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mostly low on fact, high on opinion and generate enormous amounts of confusion. Which is why, we think it is necessary to sift through all of the noise and look truth in the eye. The facts, as we see it, tell us that it has become a symbolic issue, far beyond what reality demands it ought to be; and that there is no need for either great celebration or for deep despair over the idea that FDI in retail is

As things stand. For one. investing October 26. 2012 | FORBES INDIA 39 . these arguments would still not hold water for the next 10 years. waiting and underserved now a reality. We're convinced they will focus their energies on the top 33 percent of urban Indian households (a mere 10 percent of all Indian households). India is already at 8 percent— which is significant—but the impact hasn't been as dramatic as one would have assumed.INDIA CALLING Global retailers would be interested because of the presence of a large and growing consumption-driven economy. The government has hugely exaggerated the quantum and immediacy of benefits it put on the table to sell the policy—that aam admi consumers will benefit enormously. the country's supply chain will be transformed and large numbers of small producers and farmers will gain. and a consumer who is ready. a young consumer base. Then there is the fact that the economics of the Indian market is such that it makes little sense for global retailers to focus on all consumers. employment generation will be huge. Our analysis tells a fairly straightforward story. even if modern retail were to take off on all cylinders. modern trade accounts for only 20-25 percent of all retail. in most newly developed markets. there is the fact that aside from very old markets like America and Europe.

is a victim of precisely this phenomenon. Jobs IMPACT ► Big WHY T Infrastructure. traditional shopkeepers who are now an Indian staple. not having had enough equity to fund business losses that are par for the course in the build-up phase of retailing businesses. In contrast. Retailers across the world like to work with a small group of select vendors because it makes for better profitability. Retailers aren't in the business of building national infrastructure. like Louis Vuitton. it will immediately save the indigenous modern retail industry that has been built until now. In bigger cities. the first Indian supermarket chain. we don't see that huge numbers of them will benefit. Unable to sustain the business. His business managed to generate Rs 14. which hardly any kirana deals with. and serve the lower social class customers as well. As for small manufacturers. because of regional diversity in consumption patterns. of Kirana stores IMPACT-► Very little WHY^ Small Manufacturers IMPACT -»■ Limited How FDI In Retail Will Affect Different Segments WHY-^ Retailers across the world like to work with a small group of select vendors for economies of scale. With the exception of those in the luxury retail business. many kirana shops will morph and specialise. and one that consumers loved. Here the others isn't quite what they know how to do profitably yet. he was forced to sell a part of it to the competing Aditya Birla Nuvo group. A more honest case for FDI in modern retail would be that it will lay the foundations for a new industry. Because you buy cheap. for instance.054 stores in just the UK. offering phone-in home delivery. Just paying off the accumulated interest was wiping out all the profits the business was generating. would buy 200-300 times as much food and grocery than any of the large kiranas. his business still needs a lot of money to grow to get to serious "profitability. the supplier base will be larger in number and smaller in turnover than elsewhere. Biyani is not alone. the equity kind. and are carrying large amounts of debt. Then there is the argument that encouraging modern retail to invest will provide the much-needed booster shot for the country's dismal supply chain infrastructure. employment will be generated. You buy cheap from suppliers because you buy large volumes. languished at a boutique scale by modern retail standards. The only argument that holds true is that kiranas or the small. e-commerce and the like.000 crore. Did we need cheaper air travel. you can sell cheaper to consumers than traditional retailers. the largest. However. And yes. we'd like to explain how and why we came to these conclusions. according to India Retail Report 2012 from Images. and lost aU early-mover advantages and is now a minor player. 'guaranteed to grow' for at least the next five decades. cellphones. In India.000 crore in sales. most players in the Indian retail business just aren't making any money yet. Armani or Gucci. So yes. air-conditioned cars? Now that we've stated our assessment upfront. A new skill category called retail jobs' will be created. Ten Food Bazaars. they now manage to generate Rs 2 lakh crore in revenues—a very impressive number by any reckoning and growing at a compounded rate of 25 percent each year. The birth of modern retail could improve wage rates in traditional retail. Do we need it? The question is rhetorical. has 3. What has been built until now? Between all the modern retailers in India. let's face it. 2012 . About the only infrastructure they'd be interested in is their last mile.Very little WHY-y Each retailer will invest only for what his own business requires. more television entertainment. will not die. Nevertheless. and does not include fresh produce. If not carefully funded with patient capital. a country that is so much bigger. Kishore Biyani. most ambitious modern Indian retailer. who are handicapped because they are small volume players. But that is a tribute to the small shopkeeper rather than prescience on the part of the government. Shoppers Stop has just 52 stores in 21 years of operations. #1: WHAT WILL FDI DO? Without doubt. a small number will benefit significantly. Retail businesses guzzle a lot of cash for a long time and then return it handsomely. But it won't be anywhere close to the numbers now being touted. 40 FORBES INDIA OctoDer 26. with 60 stores mostly in South India. Modern retail will target the top income layers in urban areas. This is only on the food and grocery side. all modern supermarket and hypermarket stores put together would not add up to this number. Foodworld. the others follow a fairly straightforward model. But the problem is. but in the process incurred expensive and debilitating debt of almost Rs 9. Cold Chains IMPACT-*. for example. They operate in small towns and rural India. the investment phase can be life threatening. Tesco. and reduce debt to a manageable amount. with revenues of £42 billion in 2011.

THE INVESTMENT PHASE CAN BE LIFE THREATENING October 26. Carrefour. Biyani had to sell before he got to this stage. They have very sophisticated analytics to decide store locations. IF NOT CAREFULLY FUNDED WITH PATIENT CAPITAL. It has to come from strategic investors. scaling the business isn't just about expanding across the country by building more identical stores with identical merchandise. when. Ikea. Metro. Incidentally. kapda aur makaan' (food. You need to do everything right at the stores. evolved retailers know when to scale by penetrating existing catchments and when to scale by entering new catchments. without messing with the economics or the brand proposition. They also know what is the minimum number of stores they must enter a new catchment with. All of these are lessons global retailers have figured over the years and will bring to India. but about knowing where to build a new one. clothing and home) RETAIL BUSINESSES PUZZLE a lot of cash for a long time ana then return it handsomely. and invest in all the support systems needed to run the stores (the back end). including pricing (or front end as retailers call it). and how to minimise risk. #2: WHO'S GOT THE MONEY? The kind of patient capital that the retailing business needs is not what finds favour with financial investors.The trouble is that while you build the large volumes that can help you buy cheap. They know how to tailor the merchandise mix and range to local needs when they build new stores. 2012 I FOP'ScS INDIA 43 . It is only when you achieve a certain scale that you pare down the cost of supplies to a point where margins improve and profits begin to come in. For instance. Global retailers who've already wet their feet in other parts of Asia and the Middle East are the most likely source of FDI into Indian retail. in order to attract consumers and establish your brand positioning. you have to keep fuelling the business with money. And then there is the fact that retail is as much science as it is money. something we haven't done well at all in India. most of the top 10 retailers in the world are in 'rod. Target. Large global retailers include the likes of Walmart. To accrue scale benefits.

large national ^A children's products retailing chain or even a toys discount retailing chain. consumption-driven economy. Which begs the next question: Why would they be interested? The answer is not far to find. Timberland. and Home Depot. which is into health and beauty products. ► Target has revenues of $67 billion and profits of $2. there is no deep. growing. The top 10 aside. 2012 . But the others are very well heeled too. In a country that makes 21 million babies a year. large national multi-brand consumer durables retailing chain—Croma is still fledgling with 78 stores across 15 cities.3 billion. like the name suggests. Ikea makes an annual profit of around S3.WHO IS COMING ALREADY HERE SHORT TERM MEDIUM TERM LONG TERM SUPERMARKETS TESCO WALMART SPAR -> WAITROSE -> A HYPERMARKETS WALMART --> T ESCO AUCHAN SPAR CARREFOUR -> A CASH AND CARRY (WALMART) BESTPRICE CARREFOUR METRO -> DEEPJJISCOUNTERS ALDIANDLIDL -> A DEPARTMENT STORES TARGET CENTRAL (THAILAND) "* A LOTTE BLOOMINGDALES DEBENHAMS -> HOME IKEA -> A FASH ION UNIQLO GUESS BANANA REPUBLIC GAP _} DESIGUAL ABERCROMBIE & FITCH NEXT AEROPOSTALE BED BATH HOME DEPOT & BEYOND KINGFISHER ->A 7 FOR ALL MANKIND THE NORTH FACE FOOTLOCKER BILLABONG _) H&M MASSIMO DUTTI CONSUMER DURABLES & IT PRODUCTS BEST BUY ________ APPLE SAMSUNiDIGITAL STORES FORTRESS ^A SPECIALITY WATSONS BOOTS VICTORIA'S SECRET Source: Next Practice Retail categories. Many are already in India—like Zara. is a once-in-a-half-century opportunity. And a consumer who is ready and waiting and underserved. there are at least 50 smaller retailers who have built distinctive brands and operate at varying price-quality points. but with a Do-It-Yourself slant.93 billion. ► Ikea and fashion retailer H&M are hugely profitable by modern retail standards. There is no ubiquitous national pharmacy chain with store brands for all our even-day ailments.3 billion. A large. Only two do not participate in the food and grocery business at all. They are Walgreen. we can see all the yawning gaps in the market where the consumer is ready but the retailer is barely present. and where seven out of 10 homes have a child at home. Do big global retailers have the deep pockets needed to invest and stay the course? ► Walmart most certainly outstrips everybody on this count. As we gadgetise our homes.MDIA i October 26.85 bi ll ion 40 FORBES i. which. Our guess is it could be fashion retailers like H&M and Gap. and a modern retail race that has not even seriously begun yet. If we think beyond food and grocery that is served by the ubiquitous kirana stores. a young consumer base. it has revenues close to 30 percent of India's GDP ($421 billion in 2011) and an annual profit of $16. Best Buy makes a profit of $1. there is no deep. Marks & Spencer and Body Shop—though they've still to shift into high gear despite the potential opportunity (seegraphic Who is Coming). home retailers like Ikea and department stores like Lotte. durables and electronics retailer Best Buy and sports good stores. They could be inclined to consider India as well. a slowing down of growth in developed markets. ► In the consumer durables category. is into products for the home.

For them. The result: 240 stores and expanding. Puma decided to enter directly. most of the top 20 have grown their large revenue base in the region of 3 to 9 percent in 2011. Apart from all this. where the brand has 51 percent and management control. and H&M makes a whopping $2. Marks & Spencer had a similar story.7 billion on total revenues of $1. M&S recently entered into a JV with Reliance. Then there are the more optimistic ones who believe it could go up to as much as $50 billion. the 'patient capital' needed to invest in India is hardly a bother. food. in line with its global DNA. It repositioned itself. in 2006. However. To do that. they'd much rather consolidate vendors. with the muscle to buy from these stores when they come in? What kinds of monies are needed to go after this opportunity and turn in profits for investors? And how long would these investors have to wait? To compute these answers. Puma appointed a local Indian management. which was almost the reverse of its competitors. One way to test this wishful thinking and anchor it in reality is to ask how many consumers are out there. Puma first entered the country in the mid-1990s through a franchise THE SUPPLY CHAIN Modern retailers are interested in saving on every bit of cost. Puma went with a mix of 70 percent lifestyle and 30 percent sports performance. The brand carried out some very innovative marketing initiatives. #3: HOW MUCH MONEY CAN BE ABSORBED? Various numbers have been thrown around. we compiled a list of retailers with a presence in Asia and the Middle East and hence would want to get into India arrangement with Carona. and controlled the retail environment. and a 44 percent October 26. which led to a disastrous performance. and gave them a free hand. the brand did not have control over the stores or pricing. Unlike its competitors like Reebok and Nike.000 sq ft) and positioned M&S as a premium brand. like digital marketing (Puma India went on to Facebook in 2008. Some claim retail can attract FDI in the region of $20 billion.& on a $31 billion turnover. They also have the stamina to correct mistakes and start over again if need be. speciality stores and so on. Despite a slowdown in the developed world. and this arrangement too failed. a practice adopted by Puma USA later). However. where FDI is permitted. In each category. Two examples of this: Puma and Marks & Spencer. fashion and apparel. with a 51 percent stake and with full management control. Finally. as being a value for money.000 sq ft each. home. The franchisee opened small stores (average size 3. growth rate over the last few years.33 billion on a turnover of just $15 billion.7 trillion last year. Now M&S is growing rapidly. Stores are also being right sized at about 20. staples brand. the supplier base will be larger than elsewhere because of regional diversities in consumer preferences.and grocery-driven hypermarkets. we looked at nine types of retail formats that form the pillars of modern retail. This did not work out and they terminated the agreement and appointed a new franchisee Planet Sports. Between the top 20 global retailers. These include the cash-and-carry format that serves small retailers as opposed to direct consumers. 2012 | FORBES INDIA 43 . they had a net income of $57.

that means it will take another five years before modern retail in urban 44 FORBES INDIA I October 26. To build the malls. we believe. For the other segments. is ready and waiting. These assessments in In a perfect world. As for hypermarkets. there is no real estate. as Indians don't travel far from their homes to shop. system that consumer marketers in India use). (See graph The Foreign Investment Inflow) Based on these numbers. a category in which the maximum investment is expected. and store formats. We concluded. plus Rs 50 per sq foot rent and a six month deposit. Ikea). doubled over the next 10 years. Victoria's Secret. Hitch is. includes infrastructure and people. states facilitate their entry and there is good quality real estate available. We then looked at some key parameters.000 crore/6). and apparel driven discount retailers like Target. B and C of the five point standard industry socio-economic classification. their strategic market positioning (that is.) #4: WILL ALL THESE STORES GET BUILT? TOTAL STORE CAPEX Rs 14. we tried to estimate how many stores of each kind the top 40 Indian cities could support. where in relation to the plethora of competitors do they typically peg themselves).000 crore If retailers are able to roll out rapidly. NO.500 crore Assuming six turns a year (Rs 75. sourcing operations and seemed familiar with the country. ($45 billion existing market + $25 billion 'unserved' opportunity.000 per sq foot per year. building a mall takes three to four well. Large hypers don't work. but it is the supply that has many roadblocks.and grocery-driven hypermarkets like Walmart. That is because in nominal terms. On average. we illustrate: MARKET SIZE Rs 75. In our experience. But there is a big hitch to that happening. their brand promise. ► Other mid-market players (like Bed Bath & Beyond. 406. retailers will collectively need to invest in the region of $12 billion. for example. These included the pricequality range at which they operate. Conservatively. that a proposition like Ikea can at best set up 30 stores across these 40 cities. investing $25 billion NOW into retail and real estate gives you the muscle to reach out to a $140 billion market opportunity in the next 10 years. historically the bane of investors into India. we'd have predicted very confidently that they would— especially because many of the entrants have been in India for a while in some form and are done with their learnings on the ground. And without real estate. INVENTORY Rs 12.375 crore TOTAL CAPEX: Rs 2. If these numbers are looked at from a holistic perspective. we attempted to assess who could possibly form the consumer base for each format. many were already in India either through franchises. Carrefour etc. ► Food. To fulfil the demands this opportunity presents. 2012 .250 Each hypermarket could be 50. as this size works for India. each hyper sells Rs 12. the incomes of the top 30 percent in urban India will double in about seven years. Assuming they wouldn't change their DNA just to get into India. given the store formats typically used. plus a third of that number at the back end. or Rs 60 crore a year. which IpiiiiiiiiiKcpyiiii The Foreign Investment Inflow Taking hypermarkets. And multi-brand retail is where the money and big boys are.000 of them. another $12 billion will be needed—a significant part of which can come in through the FDI route. we are convinced there is an opportunity to add another $25 billion in revenues to the $45 billion that already exists. have the ability to target and serve the top 60 percent of urban households by income (which would be the Socio Economic Classes A. What it means is FDI in multi-brand retail will be in the region of $7 billion because the government mandates a 51 percent cap on all such investments. Surprisingly. our estimate is. This makes space for 1.000 sq ft. or SEC. visit forbesindia. If this be the 'unserved' market opportunity today. all of these investments aren't possible. it would be safe to assume the opportunity will be even more robust in the next decade. It is ironic that consumer demand. will be able to address only the top 33 percent of income earners (SEC A and B). OF OUTLETS 1. we reckon these 40 cities can support at least a 1. ► Many of the speciality stores that hawk fashion apparel and accessories are likely to be relevant only to the top 10 percent of all income earners (SEC A). licensee agreements.000 per sq foot for fit-outs etc. Then there is the fact that there aren't enough malls that can enable business in this format.250 hypermarkets.250 Assuming one employee every 200 sq feet.

Several mall projects were announced around 2005 by a variety of developers. and apparel producers may have no more than 100. have been looking for quality space outside malls and retrofitting them. studying the sourcing strategy October 26. Going to far flung locations on the outskirts of the city is not viable because public transport is poor. the vacancy in prime operational malls is in low single digits! They argue that retailers. they say.5 million sq ft. But over half have not seen the light of day. and with the stringent quality parameters that the retailer specifies. only half of which qualifies as 'superior grade'. Our estimates lead us to believe that if all the numbers of stores we talked about earlier actually got built. India can go into full throttle. 100 million sq ft of space is needed.500 vendors. But even these spaces are getting scarce. To exploit this opportunity over the next 10 years.REALTY CHECK Real estate to build large format stores such as this Ikea store in France is scarce and expensive in India. As a result. Because of regional diversities and state-level differences in consumption and consumer preferences. but even a large hypermarket is likely to have no more than 2. will need to benefit from economies of scale if they are to produce at the price. #5: WHAT ABOUT THE SMEs AND FARMERS? What about them? FDI coming in isn't going to make life significantly different for most of them. Mall developers are reaHsingthat FDI IN RETAIL will not be the magic wand for preventing things LIKE LOSSES OF FARM PRODUCE DUE TO WASTAGE OR SPOILAGE malls need to be treated as an asset to be owned and enhanced to suit the retailer's need and not something that can be sold like other kinds of real estate. They make the point that the inferior grade malls "are essentially ruins of hastily commissioned projects where no retailer wants to set up store". To do that. in turn. they'd much rather consolidate vendors. the supplier base for modern retail in India will be larger in number and smaller in turnover than elsewhere. They. especially large format ones. Modern retailers are interested in saving on every bit of cost. This newfound understanding is pushing them away from projects they've announced in the past. A recent Jones Lang LaSalle report says the current stock of mall space is 62. 2012 | FORBES INDIA 45 .

but they will most likely be contract-type jobs— not employees with full benefits. even a 50. we feel. FDI in retail will not be the magic wand for preventing things like losses of farm produce due to wastage or spoilage. They grow as the manufacturer grows. But it is a well-defined vendor 'orchard'. There are some things that the government alone can and must do on its own or encourage through separate policies. But nothing really came of it. ~> Acquiring land is a challenge. there won't be more than 20. and every bit of job movement up the value chain is welcome. But a cursory look at non-food goods flooding India from Chinese shores compel us to believe "goods made elsewhere and tailored for the Indian market" will happen. insignificant again! There will also be large aggregators. ~^ Developers are shying away from new projects. That is just a small fraction of the 11 million hectares of vegetable farms India has. What's more. as this is a long-term play. .000 strong vendor community that we estimated. In a country with 13 million SMEs. but hopefully a less exploitative one. but are unlikely to contribute to building the nation's road network. The vendors on their part may sub-contract their work to smaller vendors. 2 lakh hectares of vegetable farm will be needed. "^ Construction costs are the same in large and small cities.000 jobs. is limited. but certainly jobs with a guaranteed pay check and regular income. if operations are cheaper and easier to manage from elsewhere in the world. the number of brands that can go into small cities. but let us assume it—that double the number of SMEs will be a part of the modern retail journey. THE PROSPECT Even if India was to develop another 200 malls (average 50. but they're large. Metros have over 50% of mall space. To use an analogy. and one kind of middle man will get replaced by another. this is still a drop in the ocean. FDI in cold chains was allowed a while ago. In the larger scheme of things. and partners in the business.000 SMEs with turnovers in the region of Rs 50 lakh to Rs 2 crore doing all the job. Here's why: The Demand _______ In a full throttle scenario. is the fact that a new skill category called 'retail jobs' will be created. Imports may or may not be a large percent of sales. As for farmers. Will the country's cold chain get established and will granaries get modernised as a result of FDI in retail? Unlikely again because each retailer will invest only what their business needs. This model of suppliers is analogous to that in the automobile industry where vendors and suppliers are few.The Real Estate Roadblock It will take another five years before modern retail in urban India can take off. but not more trees. if you actually add up how many front-end jobs will be created to work in the number of stores that we talked about earlier. retailers will invest in building the last mile road to their facilities.000 of them. Current Status _____ SMALL SPACES There are about 200 'malls' but most don't meet international standards. Two lakh hectares of vegetables need just two lakh farmers. More important than the number.000 sq ft. it is much the same. it would barely be enough. Tier I with under 20% and Tier II with less than 30%. An often touted argument is that Indian suppliers can be a source for the rest of the world.000 sq ft building is classified as a mall.000 jobs in the 20. #6: AND JOBS? Investments of $12 billion will generate direct employment of about 700.000 sq ft each). and the back-end jobs needed to run the business. if there is benefit in sourcing from small farmers or suppliers. Source: Jones Lang LaSalle that global retailers have used in other countries and the number of vendors that some of them have already registered in India. AP). the norm is 100. LOPSIDED SPREAD 60% of malls are in 5 states (Karnataka. which yields more fruit over time. The Holdup ~> The high streets do not have the potential to grow. internationally. UP. The asset needs to be owned and enhanced. that's still only 40. but rentals vary significantly. The same consolidation logic would work even more acutely in this case. West Bengal. just the foreign players can absorb 100 million sq ft of mall space over the next 10 years (in a cautious scenario. just as NREGA improved wage rates across the board for labour in rural India by setting an inflation-indexed 'official' labour rate. and do well. perhaps the birth of modern retail will improve wage rates in traditional retail as well. Maharashtra. Even if you assume—very unlikely. The number of these jobs here will definitely grow as the turnover of the vendor increases. To supply 'everyday' vegetables to the top 40 cities. In India. Also. up to 42 million sq ft). Just for\the record. Perhaps another 200.

So let's reality-check the wild hopes and discount the alarmism. And finally. which is inimical to modern retail. new skilled and semiskilled job categories will be created. However. S Raghunandhan has extensive operating experience in retail and mall development businesses. Modern retail in India is not for the faint-hearted. or that there will be new conditions that make the already challenging path to profitability even more challenging. It just means that it takes longer. because the new real estate is too expensive for them. there is the structure of consumer demand in India. WHAT WORKS IN RETAIL INSTEAD IS IF A FEW PEOPLE BUY A LOT are different oils. needs harder work. and e-commerce. Many will survive. and has customer relationship management skills and service levels that are very hard to beat. it also opens up the possibility that many local businessmen will take a shot at entering the fray.Will the small retailers. will start managing the inventory in richer homes proactively. It is inevitable that some will die. the strong foundations of a new industry with enormous potential will get put into place. and a model for large corporate 'middlemen' buying directly from farmers and transmitting consumer preferences to them will be established. it was like going to another planet! The SKUs (stock keeping units. 13 Rama Bijapurkar is an independent market strategy consultant. and personal cars comprised the central nervous system of that country for a long time. and already have. What works in retail instead is if a few people buy a lot. the so-called mom-and-pop retailer is a very savvy businessman. While this may seem like an opportunity lost. All of this will combine to dilute the actual investment to less than half of what the market opportunity can support today. That is not the case here. Then. The retailing model in America was built when gasoline was cheap. This does not mean that there is no money to be made in organised retail in India. the consumer automatically runs towards the organised retailer. India scores poorly on both. Another enemy retail faces is the heterogeneity in India. R Sriram is an entrepreneur who co-founded Crossword. Unfortunately. The economics of the retail business in India is severely challenging because of the structure of demand and the heterogeneity of consumer preferences. The other thing that is clear is this. especially the kirana stores die? The bulk of them are safe because they operate in small towns and rural India and serve the lower social class customers as well. there is the never ending political sabre-rattling around FDI. there are hardly any kiranas anyway. solving the problem by going to far flung locations on the outskirts of a city is not a viable option because public transport is poor and fuel is expensive. morph and specialise. learning this business with foreign partners. and most likely. the possibility that different states will impose different caveats. when we went from Chennai to Pune. a set of new decent-sized supplier companies will emerge. #7: SO WHAT DOES ALL THIS MEAN? Despite consumer demand and global retailer readiness. there are many reasons why the investment in modern retail will be what we would describe as 'slow burn'. In India as we know. Sales per square foot 2. there IN INDIA. It will not be the cure for all ills. then creating the value advantage over the local small retailer costs money too. Gross margin return on investment per square foot. Every hundred-odd kilometres. Lack of the critical ingredient of real estate is one big reason. And most likely grow profitably from -phone-in home delivery services. In newer settlements. huge joint ventures will be forged. or items for sale) needed even for just cooking is a lot. because the structure of demand in India is such that many people buy a little bit each and that adds up to a lot. Over the next five to 10 years. but it certainly is one more remedy that needs to be given its best shot. also on account of real estate prices. There is less money in a given catchment area than in developed markets. different pulses. to name just a few. there will be no mass murder. and get on with the job of building one more good thing for the future. If value is (benefit minus cost) as perceived by the consumer. They work together under the brand Next Practice Retail to offer business design and consulting services for retail oriented consumer businesses . This is a problem for two reasons: 1. This makes scaling the business harder. As one retailer said. In markets with dismal mom-and-pop stores dominating retail. different brands and different water conditions. and is not for the fainthearted. MANY PEOPLE buy a little bit each and that adds up to a lot. even as domestic modern retail has expanded. and we may eventually see the emergence of entirely homegrown retailers.

and nobody wants the stocks he has stockpiled. chief investment officer. Naren. ICICI Prudential Mutual Fund.. And Naren has invested close to 10 percent of the portfolio for one of his funds. This stock has been a poor performer for the past one year.000-crore Dynamic fund. has picked up and bet big on stocks that have been out of favour.--. The other fund in Naren's stable is the Rs 4. equities. he is wrong. For most part of his life. 50 FORBES INDIA | October 26. his bet on Bharti would look like a loser's gamble. Dynamic.*-.88 percent. 2012 . It has lost 40 percent of its value in the past year during which the Sensex moved up 15 percent.800crore Discovery fund immediately after joining ICICI Prudential in October 2004. over the past three years. one of the highest in a flat market. it has given an annual return of 10. Features/Work in Progress Rigorous research has been the backbone of ICICI Prudential's decisions to go against the mutual fund tide. According to Morningstar India.. which has shown a similar performance: Over the past three years.19 percent.. against a category average of 5 percent. the fund has given an annual return of 13. a mutual fund analytics company. If it wasn't for his record. in Bharti. The nightmares will continue for the time being because Naren's current favourite is Bharti Airtel.. and emerge successful By PRAVIN PALANDE S ankaran Naren has an enduring nightmare: The crowd is right. But his numbers speak otherwise.. Naren started managing the Rs 1. Mrinal Singh took over from him in February 2011. It is a genuine fear for someone who likes to go against the grain.