retailing WALMART far.

qxp 6/16/2005 12:55 PM Page 24

Retailing

R
etail has always been an alluring Sahani, Associate Director KSA worth of merchandise from India last year

What Brings business proposition. But as the

rule currently stands, foreign
retailers cannot yet hang their
shingles in India - yet. However, with
Minister for Commerce and Industry Kamal
Technopak, "The Indian retail scenario is
booming and Indian retailers are doing well
across the board. Current profits in the
organised retail trade are good and the
future seems even more alluring. We have
and are aiming to increase that by almost
30 per cent every year, thereby doubling
our sourcing in the next three years.
We are also interested in exploring
investment in India's retail market if this

Walmart To INDIA? Nath announcing that foreign investment

would soon be allowed in this business,
the prospects of burnished brass marquees
of the global majors coming along High
Street seems imminent.
In a sense, the first business visit to
India of John B Menzer, President and
CEO, Walmart International seemed to
presage the change in policy. It may be
noted that Walmart still functions largely
as an American company. Its international
presence is restricted to ten countries of
which only two are Asian — China and
South Korea. It has not entered any new
market since '02.
Menzer's point was brief but direct. He
said, "We missed the bus in the nineties
when FDI had been permitted and have no
intention of repeating our mistake. We aim
to establish our retail chain in the country
when policy permits."
Menzer's regrets are not too off the
mark considering that Dairy Farm
International of Hong Kong and Metro Cash
and Carry GmbH of Germany that have tied
up with the RPG group and Metro Cash
and Carry India Pvt Ltd respectively, have
raked in considerable profits. While Metro's
revenues are not available, RPG’s sales are
more than $100 million. Recently RPG quit
the JV and its shops will now be styled
under the brand name Spencer. Dairy Farm
will operate 45 stores under the Food
World brand name.
The figures may not appear large
enough for an international company but
INFLUENCING THE FDI RETAIL DECISION?: Walmart CEO John Menzer with Prime Minister Manmohan Singh during his recent visit to India
they do indicate that for a retailer of
Walmart's size, with a turnover $285 bil-
Walmart has a higher turnover than any other lion future growth can come only from new
markets. Already planning investments in
company on this planet. And now, it is keen to the country Menzer says, "When FDI is
permitted in the retail sector, we would be
set up shop in India, as the recent visit of its looking at significant stake in any joint ven-
ture because the scale of the investment
CEO John Menzer underscores. What is the lure? and the kind of technology required would
require that kind of stake."
What are the retail major’s imperatives? The size of India's retail trade is esti-
empirical evidence that the average urban
consumer is saving less today than he did
a few years ago and importantly, spending
his income on a wider array of goods than
earlier. The current mood of the market is
expansionist with consumers willing to lap
up newer and better brands."
Menzer has obviously observed the
Indian market keenly and is aware of its
challenges. He says, "India is a price sensi-
tive market and therefore we will be devis-
ing our strategy for her very carefully."
Adds Menzer "Retailing is like a game of
three dimensional chess where we operate
as a local, regional and global player, so
depending on the needs of the market we
shall change our format and adapt."
He cites the example of South Korea
where the company has multi-storied out-
lets that stock merchandise on the lower
floors with the higher floors being reserved
for parking.
While Walmart would certainly like to
set up shop in India when the policy allows
such investment, the truth is that India has
emerged as an important destination for
sourcing Walmart's merchandise. Says
Elizabeth Keck, Director, International
Corporate Affairs Walmart International,
"We sourced approximately $1.2 billion
segment of the economy is opened for for-
eign direct investment."
Products that are sourced include
apparel, fine jewellery, home textiles and
houseware. Items for which sourcing is on
the rise are stationary and office supplies,
electronics, seasonal handicrafts, leather
goods, shoes, and food. Known for the
strict quality standards, and tight price lev-
els it enforces, Walmart nonetheless has
suppliers eager to supply merchandise to it.
Says Adarsh Gupta, COO, Liberty Shoes,
the second largest manufacturer of shoes
in the country with an annual turnover of
more than $80 million, "The margins with
Walmart are almost non-existent. The only
advantage is that as our overhead costs
are met, we can save on our fixed expens-
es." Liberty currently sells less than one
per cent of its turnover to Walmart but
hopes to up this significantly in the
near future.
S ome of Walmart's suppliers are already
enhancing their production facilities in
anticipation of growing business. Rajinder
Gupta, CEO of the Trident Group, the sec-
ond largest towel manufacturer in the
country with a turnover of $177 million is
one of them. Gupta's company supplies

Anu Saraf reports on Walmart's growing mated at $206 billion and growing at five
per cent annually, according to KSA
interest in India. Technopak, a retail advisory which closely
tracks the trade. It is not exactly something
to be sneezed at. Explains Harminder
THE WALMART FORMULA: Fine prices have made the chain popular with consumers in the US

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retailing WALMART far.qxp 6/16/2005 12:55 PM
RETAILING
The size of India’s
retail trade is
estimated at $206
billion and growing
at five per cent
annually.
NOT SO MAJOR INTERNATIONALLY
WALMART HAS BEEN CONSERVATIVE IN GLOBAL EXPANSION
FOR ALL ITS REPUTATION, and a mam-
moth sales turnover of $285 billion,
Walmart is still largely a US chain. It is
very selective in entering foreign mar-
kets, unlike other majors such as
McDonald's, Coca Cola, Pepsi or General
Electric. It began going global as late as
1991, in neighbouring Mexico. The next
four stops were also in neighbouring
countries; in Puerto Rico, Canada,
Argentina and Brazil. Fourteen years later
after it went overseas, its international
presence is confined to just ten coun-
tries. India would be the eleventh if
Walmart sets up a retail chain in India.
In contrast, Coke has operations in
over 200 countries and General Motors in
26
Page 26
terry towels to Walmart. "We plan to
invest approximately $75 million to triple
our production capacity from nine thou-
sand tonnes to thirty thousand tonnes per
annum. We are also investing another
$10 million in acquiring towel brands in the
US," says Gupta.
Arvind Singhal, Managing Director KSA
Technopak, points out the structural
changes that occurs when Walmart comes
shopping. "Walmart shops in huge volumes
and though the margins are minimal they
have the effect of shaping up the entire
sector and increasing its efficiency." Being
a tough buyer, Walmart inspects its ven-
dors carefully and starts business initially
with a few test orders that are assayed on
the basis of quality, quantity, prices and
delivery schedules.
Take the case of PA Time Industries,
which manufactures Maxima brand of
On the Web
The Walmart website is www.walmart.com
32. While over 90 per cent of General
Electric's $72 billion turnover in 2004
came from global operations, it was just
16 per cent in the case of Walmart. Even
of the ten countries, the retail chain’s
presence in many is still small. In China,
which it entered in 1996, it has less than
40 outlets under its own name and 34
supercentres. In Korea and Argentina
also, it has a small presence.
Walmart has sometimes resorted to
the acquisitions route while entering for-
eign markets. In Germany, Brazil and UK,
it bought out local companies. In
Germany, it has renamed the Wetkauf
and Interspar chains, it has continued
with the Asda line in UK.
watches in the country. To become a 'pre-
ferred vendor' Walmart took it through an
exhaustive quantitative and qualitative
checking process. It went through the
entire product's costing, part by part, and
flew down its director finance and product
head to ascertain the final product. It then
flew down a team of inspectors who
checked out qualitative factors, such as
whether the workers were being paid fair
wages, if any children had been employed
illegally and whether there was a creche
facility for working mothers etc. Says
Manoj Sharma, deputy general manager of
P A Time Industries, "Dealing with
Walmart has made us confident of export-
ing to other players as well."
W ith reports that the US is mounting
pressure on China to revalue its cur-
rency and the latter hiking tax on exports,
the combined effect of which would make
goods costlier, India is emerging as a pre-
ferred destination for Walmart's sourcing.
Already Walmart's suppliers in Singapore
and the Middle-East have also expressed
their interest in shifting production to India.
Says Andrew Tsuei, Walmart's vice-presi-
dent and managing director Global procure-
ment, "Cheaper raw material and availabil-
ity of trims allow Indian companies to
reduce production lead time, which is
important to the retail industry." Apparels
account for 30 per cent of Walmart's total
sourcing from the country and the compa-
ny plans to scale this up significantly in the
near future.
The prospect of international retail
chains like Walmart, Carrefour and Ahold
entering the country has enthused many
suppliers. And also consumers, who are
looking for a wider choice and finer prices.
However there remains some opposition to
allowing FDI in retail. A few analysts report
that allowing major global retail chains in
would entail the loss of several thousands
of jobs as traditional mom-and-pop busi-
nesses would close down — as has hap-
pened in the West.
But there is also a powerful counter-
argument: each sector that has been
opened to private investment, such as
insurance, banking, civil aviation etc. has
grown. And the consumer has benefited
every time.
By the end of Menzer's visit, the ques-
tion being asked was, When will Walmart's
time come…