Three years ago, retail was the happening thing for corporates. Everyone wanted a slice of the ‘future.’ Now, after months of downsizing and desperation, many are hurtling to the exit door. The first ones to trigger the consolidation phase in the retail sector could be West Asian chains X-Cite and Jumbo.
According to sources, Dubai-based Jashanmal group’s X-cite and Manu Chhabria-founded Jumbo Electronics, also based in Dubai, are looking at winding up their Indian operations.
X-cite, a consumer durables chain, is negotiating with Reliance Retail for a sellout, sources told FE. In 2008, Tony Jashanmal, a promoter of the business group, had entered into a franchisee agreement with Kuwaiti conglomerate Alghanim to launch large-format multi-brand electronics retail chain in India. The chain was launched through an Indian firm, Impact Retail. X-cite was eyeing close to 30 stores across the country by 2009, investing more than Rs 200 crore, but could open only eight.
Details about the chain’s negotiations with Reliance are not immediately available. A Reliance retail spokesperson, when contacted, said, “We don’t comment on market speculation.”
“Retail was hit essentially due to the high rentals, and then, funds dried up. Now, retailers are a lot more cautious about signing properties and we are willing to wait for the right price. As for consolidation in the industry, there would be a lot of people in need of funds, and so, strategic partnerships might indeed be on the cards for a lot of players in the market.”
–Raghu Pillai, CEO, Reliance Retail
Jumbo Electronics, with stores in key metros, is considering an exit from the Indian market, sources said. “Unlike in the West, Indian market is highly fragmented and organised retail has been a very hard learning even for established players. For instance, in the electronics segment, the market is still controlled by suppliers or manufacturers. Unlike neighbourhood stores, organised retail chains can’t give spot discounts as they have small inventory and operate on very small margins”, an industry expert told FE.
Analysts say Reliance Retail, which targeted Rs 1-lakh-crore business by 2011, has managed just 4% of that as turnover so far. The story is no different for the AV Birla group, which operates about 600 stores under the More brand. These companies, however, have deep pockets and can sustain losses for a few years. But smaller chains do not have the cash comfort. Subhiksha and Vishal MegaMart are already gasping for breath. Vishal has filed for corporate debt restructuring with the lenders.
“Retail was hit essentially due to the high rentals, and then, funds dried up. Now, retailers are a lot more cautious about signing properties and we are willing to wait for the right price. As for consolidation in the industry, there would be a lot of people in need of funds, and so, strategic partnerships might indeed be on the cards for a lot of players in the market”, Raghu Pillai, CEO, Reliance Retail, told FE.
“Compared to the previous years, there has been only a marginal rise in the sales of the organised retail segment this year. On the cost side, retailers have managed to cut costs but the rentals are still very high. A few retailers have been able to sign properties at 10-20% lower costs. But, by and large, there has been no strategic dip in the rentals. Developers still command 30-40% margins. Outlook is still difficult for the retail sector as a whole. It will take some more time”, Pinaki Ranjan Mishra of Ernst &Young said.
Mishra said there was a strong business case for consolidation and the industry could see much activity in the coming months.
Source: The Financial Express