Indian Retail Industry

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Retail Industry overcoming the challenges?

A- 1.) Tie –ups with Professional Institutes to overcome the Problem of trained manpower

Retail Houses like Reliance Retail and Future group are most likely to ink a strategic partnership with NIFT. The partnership will provide Reliance Retail with trained pool of professionals, latest designs and access to NIFT research base.The MoU will be signed up by December 2006. The partnership will include industry sabbatical for NIFT faculty and scholarship for the students.

Recently, even Raymonds has inked a similar partnership with NIFT. NIFT plans to enter into partnerships with India’s leading Retailers to commercialise its recently launched fashion label.

Source : “ The Economic Times dated 16/1/2006

2.) Reduction of Commission paid to traders and middlemen and improving quality of products like vegetables

Reliance Fresh and Pantaloon have begun buying potato futures on MCX. MCX in turn charges a premium from cold storage owners who want to be on its list of potato warehouses.Futures trading has become a winner for MCX with almost 40,000 tonnes being traded everyday. Retailers like Reliance and Pantaloon get fresh potatoes and other vegetables and also save on commission paid to traders and middlemen. Also, when prices on the exchange fall below the spot market,they will get vegetables cheaper from the exchange than the open market.This means opening of more cold storages across the country. The quality is being ensured by fitting the selected warehouses with a meter to constantly monitor temperature and moisture. This meter will be connected through a radio antenna with MCX’s servers in Mumbai.

Source: The Economic Times dated 14/11/2006

3.) Challenges faced by Pantaloon Retail like the challenge of overcoming the Free cash flows which are negative, and to increase customer intelligence and expansion.

Pantaloon Retail’s Mr . Kishore Biyani is about to raise funds for a high risk 4,000 crore expansion. He is buying up more retail estate than many Asian biggies. He is attempting the quickfire launch of 18 formats and over 3,340 new stores by 2010. Pantaloon Retail is also getting into risky and capital Intensive businesses, including Lending to his customers and selling Insurance. This is being done when Pantaloon Retail is under 395 crore negative cash flow from operations and investment. If he manages to expand as much as he is planning to do, he will need hordes of managers at every level which would be tough as there is shortage of talent. Profit margins, too are coming under pressure. Few months back, Biyani had explored the possibility to collaborate with Mr Mukesh Ambani , but the talks failed.

Other Retail houses like Trent, the retail arm of $17.8 billion TATA group, has expanded into hypermarkets.Shopper’s Stop is expanding. South Africa’s Shoprite is here via franchisee route. UK’s giant Retailer Tesco is in talks with Homecare Retail Marts, owners of the upcoming Magnet hypermarket chain.Walmart is waiting for FDI to be allowed. Mr. Biyani is planning to turn Pantaloon’s Retail into a $7 billion integrated retailer with $ 1 billion profits by 2010. Biyani’s empire, recently named the Future Group is expanding.

In last two and half years, Mr Biyani has booked 16 million sq. feet of realty at an average of Rs 45 per sq. feet. By 2010, PRIL’s stores will be occupying a total of 30 million sq. feet. Also, he wants 40 million sq.ft more under Pantaloon’s real estate funds business.Mr biyani is on a buying spree.

Also, Pantaloon is expanding more and more into Communication and durables. He plans to increase the share of food sales as well. Pantaloon is also looking forward to the group’s financial services business to generate significant cash flow. Reliance , on the other hand is planning to put $2.4 billion in equity. Biyani is also looking forward to split his business and raise money separately for each.

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