Wal-Mart takes a few local lessons, Ropes In Consultant To Study Successful Indian Models

THE world’s biggest retailer, Wal-Mart, may be looking to learn some lessons from a small Indian retail chain. According to sources, the alliance between Bharti and Wal-Mart has mandated a well-known international research firm to study south Indian retail outfit Subhiksha’s neighbourhood store business model. Sources say Wal-Mart may look at something identical to start with in India: a major departure from the retailer’s global policy where the emphasis is on hypermarkets. Though both Bharti and Wal-Mart have all along maintained that the front-end retail will be an exclusive Bharti operation with no interference from Wal-Mart, industry sources say the retail behemoth is keenly following the development. “Its just that Wal-Mart does not hold an equity in the retail project, thanks to the FDI regulation. On the operations front, it is an equally-active participant, and is ensuring that its global best practices are properly implemented,” a source said. When contacted, a Wal-Mart spokesperson denied having appointed any agency for conducting a survey. Studying the Subhiksha model is part of a macro consumer survey, on which the companies will base their exact retail roadmap in India. Apart from studying viable formats, the study will, mostimportantly, delve into the brand name for these stores.

Real estate cost may be too high for Wal-Mart

ON the face of it, this may appear to be an attempt at Indianising its operations. But, what could have led the retail behemoth evincing interest in Subhiksha's model is the latter's backward integration of a traditional front-end and a modern back-end as a means to bridge the gap between unorganised and organised retail. “They particularly seem to be interested in replicating the Subhiksha neighbourhood store model, of course on a larger scale. The fact that the company has created a significant presence at a time when organised retail was not the hottest selling news, is also why it has attracted Wal-Mart’s interest,” the source said. Real estate considerations could also not be ignored. Commercial real estate costs have shot through the roof in the last couple of years, and creating the requisite land bank has become a major hassle. This cost is particularly high for areas close to existing habitations. Worldwide, Wal-Mart does not invest more than 3-4% of its topline as real estate costs. However, agencies like Cushman & Wakefield and Tachnopak estimate this to be to the tune of 8-9% in case of 50,000 sq ft plus formats in India, as per present costs. This will lead to severe pressure on margin, something which the retailer would obviously like to avoid.

Courtesy: EconomicTimes

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