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Wal-Mart rolls out plan to open 500 stores in India

Livemint:  June 24, 2015

Mumbai: After restructuring its operations to focus exclusively on the cash-and-carry (or wholesale) business in January last year, Wal-Mart India Pvt. Ltd, a wholly owned subsidiary of Wal-Mart Stores Inc., is working on an ambitious plan to have 500 stores in the country the next 10-15 years, a top executive at the firm said.

“We now have a full team in place and will be able to grow very fast,” said Krish Iyer, chief executive officer, Wal-Mart India, adding that the company is in India for the long term and will start growing aggressively in two to three years from now.

Two years ago, Wal-Mart’s Indian plans ran aground amidst charges of flouting Indian rules on foreign investment in retail that have since been proved false. That and differences in strategy led to the company breaking up with its partner Bharti Enterprises. Iyer took charge around then.

“The most important thing when I came in was to have a clear strategy. It was evident then that I would focus on our cash-and-carry business,” said Iyer in a 19 June interview.

With a near exodus of employees after the crisis, Iyer had to first build a team. He also needed to focus on strengthening the company’s compliance processes and improving its relationship with various stakeholders, including the government and media.

The first new store since Iyer took over will open in August in Agra.

Opening stores of the kind that Wal-Mart requires, with about four acres of space on average and with lease of over 30 years, is not easy. “The gestation period for a store launch is 2.5 years,” explains Iyer, while sharing that three years from now the company will be in a position to open a store every one or two months.

“Until then, it’s about getting ready for the growth,” he said.

The company is on course to opening 50 stores by 2020, said Iyer, who is now looking at a bigger business potential over a longer horizon. “We can, over a period of 10-15 years, have 500 stores. The potential in India is huge. India is five countries rolled into one,” he added.

Currently, Wal-Mart India has 20 stores across eight states, largely located in so-called tier II and III cities. Its investments in India till a year-ago stood at Rs.2,000 crore. Last year, in June, the parent said it would invest Rs.623 crore in India, according to filings with the Registrar of Companies (RoC).

“We will continue to focus on tier II and III cities and build our presence in concentric circles—focusing on a few states and geographies to gain critical mass,” said Iyer.

To achieve these numbers will not be easy, said experts. “The biggest challenge is getting clean land parcels without any legal discrepancy. However, compared to the larger cities, the focus on tier II and III cities is a good strategy because at least land is available there at cheaper costs,” said Vivek Kaul, head, retail services India, CBRE South Asia Pvt. Ltd, and added that the risk is that the land could be agricultural and obtaining a land use conversion to commercial could take 6-8 months.

Over the past year and a half, the company has also worked with the government at the state level to improve its relationships, said Iyer. “There is an ease of doing business we are experiencing in some of the states that we are in. It is driven by the centre, but executed at the state level,” he added, pointing to states such as Telangana that recently unfolded its industrial policy.

Telangana is proposing a single-window clearance for various kinds of proposals with clearance time ranging from 21 to 30 days. This is also happening in Andhra Pradesh and Uttar Pradesh and Punjab may follow suit, said Iyer.

Setting up a wholesale store needs a little more than 45 licences.

Wal-Mart rival Metro Cash and Carry India Pvt. Ltd, which has 16 stores, announced last year that it would have 50 stores in India by 2020. In March this year, Metro AG, the parent, said it would invest Rs.400 crore in the Indian subsidiary, according to a 31 March filing with the RoC.

The organized wholesale business in India is very nascent with less than 100 stores between the top companies, including 45 cash-and-carry stores of Reliance Industries Ltd’s retail arm. French firm Carrefour SA exited the businesses last year to focus on reviving flagging sales in its home market.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.