FDI In Retail Signals Evolution For Retail Real Estate Services [29 November 2011]

With FDI now permitted for multi-brand retailing in India, global retail giants are now zeroing in on India. We will see the arrival of multi-brand luxury chains in Delhi NCR, Mumbai, Bangalore and Chennai, with mid-segment retail chains such as Macy’s and Primark focusing on all cities. However, the biggest game-changers and most obvious beneficiaries of the opening up of FDI in retail are the hypermarket chains such as Wal-Mart, Tesco and Carrefour.
This is because they already have footholds in the country and were, in fact, lobbying with the Government. These chains will expand exponentially with large standalone stores and partnerships with mall developers on the basis of their USP as primary footfall drivers. The currently depressed economic scenario will not hinder but rather accelerate their expansion, since they operate on a style of business which is eminently adaptable to recession-like situations. In fact, the retail space oversupply in many of our larger cities presents them with a huge opportunity.
Not surprisingly, business for property consultancies with expertise in retail services has begun booming already. It is important to understand the nature as well as the scale of business being generated here. Hypermarkets like Carrefour, Tesco and Wal-Mart have a business model based on thin margins and high volumes. This is how they keep their prices at cut-throat low levels. They also bring their own logistics, warehousing and overall back-end support capabilities with them and are powered by a deeply-researched understanding of footfall dynamics.
Unlike run-of-the-mill malls, they are not dependent on multiplexes, food courts and anchors to drive footfalls to their establishments. They generate their own footfalls by the sheer power of bargains. Some of the more prominent Indian hypermarket chains had a monopoly on this front so far, but will now be challenged to upscale their operations and upgrade their backend, logistics and support systems in order to compete with these global retail giants.
We are standing on the threshold of an era in Indian retail real estate that will be based on careful market research and forward planning by the biggest stakeholders. Real estate consultants with retail expertise are now being called upon to:

Provide feasibility studies

Formulate entry strategies and market mapping

Engineer retail-space tie-ups

Source suitably low-priced land parcels in suburban districts which nevertheless offer excellent connectivity and manpower

Provide construction management services in the inception stage and project management services from the launch stage onward
In other words, the real estate business aspect of FDI in multi-brand retail in India is beyond dispute. That said, we are not looking at a total takeover of Indian hypermarket-style retailing here. 70% of the country still consists of rural areas which do not offer the vital ingredients that can spell success for these retail giants. These would include automobile ownership and credit card penetration, on which these retail giants are completely dependent.
There are, of course, notable exceptions to this rule – prosperous village clusters such as can be seen in Punjab would still warrant the arrival of a Carrefour, Tesco or Wal-Mart. On the whole, however, the rural areas will continue to be serviced by the existing mom-and-pop retail systems.
Author: Pankaj Renjhen, Managing Director – Retail Services, Jones Lang LaSalle India

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