An Indian customer shops for groceries at a neighborhood shop in New Delhi, where many shoppers still prefer local vendors to supermarkets

It was hailed as the “great Indian retail revolution,” but a slowing economy and overambitious expansion have left many retailers struggling with what analysts now say were hyped expectations.

The companies hoped to exploit what was seen as one of the last virgin retail frontiers, which is dominated by small shops, but the outlook for “Big Retail” is souring as the global downturn deepens.

“There’s belt-tightening. The country is going through a realignment of consumption patterns – we’re not immune to the rest of the world,” said Retailers’ Association of India chief executive Kumar Rajagopalan.

The group has slashed its revenue growth forecast for the chain retail sector to 15-20 percent, down from 30- 35 percent, for this fiscal year to March. But an official who asked not to be identified said the figure now was “anyone’s guess.”

Customer numbers are down, sales are falling and the construction of glitzy shopping malls has been put on hold.

“Everyone was being far too bullish about India,” Bryan Roberts, global research director at London-based Planet Retail, told AFP.

“Long term there’s massive potential but a lot of economic development has to take place before India can sustain this surge in retail development,” he said, adding: “There was a lot of hype.”

The latest sign of trouble came this month when 600 outlets of leading Indian discount cooking and pharmacy retailer Subhiksha Trading Services were looted by disgruntled staff after it failed to pay wages.

The retailer, which had grown at a blistering pace – expanding 10-fold to 1,655 outlets since 2006, announced business was at a virtual standstill.

‘Too much, too soon’

The sector has been “doing too much, too soon,” R. Subramanian, managing director of the ailing Subhiksha chain, told Business Standard newspaper.

“The kind of investments and expansion that Indian retail was attempting is unprecedented.”

Foodland Fresh, a smaller Mumbaibased retail chain, recently shut 39 of its 42 outlets.

Kishore Biyani, called the “King of Retail” for pioneering chain stores in the country of 1.1 billion in the mid-1980s, has slowed his expansion plans.

Many stores are offering up to 70 percent discounts to unload merchandise.

“Consumers are definitely pulling back from spending on discretionary items,” said Hemant Patel, retail analyst at Enam Securities.

Other retailers are renegotiating sky-high rents – which in Mumbai and Delhi are among the world’s highest – to stay in business.

“When we’re talking about revival of the retail scene, people are going to be working first on their balance sheets and making sure they’re profitable,” said Patel. “They’re rationalizing their rollout plans and capital expenditures.”

India’s biggest private company, Reliance Industries, has been consolidating – seeking to relocate some food stores, shut down inefficient ones and launch specialty outlets for footwear and electronics.

Reliance made headlines when it announced plans in 2006 to invest five billion dollars to set up an Indian version of Wal-Mart, the world’s largest retail chain. The aim was to blanket India with a mix of neighborhood convenience stores, supermarkets, specialty stores and hypermarkets.

But in 2007 it had to freeze plans to open its Reliance Fresh flagship food stores in the nation’s most populous state of Uttar Pradesh, amid bitter opposition from family-run corner stores backed by politicians.

Reliance says it has launched some 750 stores nationwide and insists it has gained “critical mass” in the market.

Analysts estimate corner stores still account for 95 percent of the retail sector, estimated to be worth an annual US$350 billion by global consultancy KPMG.

Need to fix formats

Analysts say the big stores still have to get their model right in providing an alternative to neighborhood retailers who offer convenience, credit and personalized service.

The retailers have had “nothing but consultant reports to work on since none of them had any exposure to retail, and consultants could not figure what the issues peculiar to Indian retail were,” said Subhiksha’s Subramanian.

New Delhi housewife Supriya Soni shopped at a new mini-supermarket in the upmarket neighborhood of New Friends Colony when it opened near her home.

But she went back to buying food from her local corner stores and the sabzi-wallah, or vegetable seller, who goes by her house with his wheelbarrow piled high with produce.

“It’s just more convenient, it’s not any more expensive and besides I like doing business with him – it’s more personal,” she said.

Retailers also face other hurdles – poor supply chains that include lack of cold storage facilities, bad transport, and warehouses where rats can eat the produce before consumers.

Spoiled goods can be extremely costly for an industry which operates on wafer-thin margins of 2-3 percent.

British catalogue chain Argos recently exited an Indian joint venture, saying it had not met performance targets.

Source: AFP