Floodgates Open at Last
Vishal is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The growth story of India which took a back seat in the last couple of years is set on its path for a trend reversal with India opening up its gates for Foreign Direct Investment in Multi brand retail. But this move by India will undoubtedly benefit world major retail stores with Wal-Mart among the biggest beneficiaries.
A deep dive analysis of this proposal would bring to light that Wal-Mart Inc. (NYSE: WMT) is about to rediscover its fortunes in a big bang by tapping in on one of the biggest retail markets of the world. Let’s justify it by some facts. The Indian retail sector will touch close to US $833 billion and is expected to grow with a CAGR of 10% in the next 5 years. Now this Y-o-Y growth rate is something quite attractive for any potential investor. Even though organized retail is about 5% of the overall market, but with entry of players like Wal-mart we will see a new trend emerging all together. This is a phenomenon not yet experienced by Indians in a big way and once we have such hyper stores in one place we could see new market dynamics all together.
With major developed economies of the world grappling in fear of double dip recession and consumerism being on a downward trend it is a welcome move for big retail stores of the world. Even China has seen a drop in their GDP growth rate; this move would see a churn in the investment market with a lot of goods and services making their way to India. But in the long run we can expect the likes of companies like Wal-Mart to be the major beneficiaries of this move.
Wal-Mart can open their stores in any Indian city with a population of more than 1 million subject to state government’s approval. Now trust me this figure is not too difficult to qualify for; taking into consideration the Indian population statistics and they would be able to open stores in as many as 22 cities in India. As per the announced Indian retail FDI norms a foreign entrant must invest at least $100 million if they wish to enter India. So when do we see the real effect of this investment in the balance sheet of Wal-mart. Well if reports are to be believed we can see the first store in India in the next 12-18 months. The Indian market offers scope for almost all of the Wal-Mart’s store formats whether it is the mega superstores which carries general merchandise and includes a supermarket, the discount store which carries a wide assortment of general merchandise and limited assortment of food products or the neighborhood stores which carry a limited assortment of general merchandise, but have a full supermarket.
Other major US retailers like Target (NYSE: TGT), and Kmart (owned by Sears Holding Corporation (NASDAQ: SHLD)) also are keen to leverage on this opportunity and India should be a significant geography in their future business plans. Target already has a presence in the silicon valley of India, Bangalore, employing close to 2500 people. In retail circles people even call it as Target's second headquarters. So Target along with Wal-Mart have a headstart in the know how of the Indian retail landscape and certainly would be in forefront to embark on the new opportunity . But Kmart would not be far behind in the race . With an experience of operating 1305 stores across 49 states they too would be very aggressive in their Indian Retail Business Expansion strategy.
Well , whatsoever the case may be both Target and Kmart will face tough competition as Wal-mart already has presence in the cash and carry segment in India (in partnership with Bharti Retail, an Indian business conglomerate) and no one would doubt Wal-Marts ability to scale up to any geography in a short duration owing to their gloabl supply chain and experience .
Wal-Mart gets a head start as compared to other major players which could be a game changer in the current play of events. It would be interesting to note that even though with such minuscule operations Wal-Mart was able to generate revenues to the tune of $1 billion from India. I leave to the imaginations of all readers what would be their top line when they have the whole of Indian retail market at their disposal.
This may be the next bonanza for the Wal-Mart behemoth.
moneygyan has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.