FDI in Retail: Wholesale victory

Sunil Jain

In any case, anyone who has even a passing acquaintance with retail—which means you go shopping at least once a year—knows, it is not the kiranas that are closing down, it is the big retailers. So Subhiksha shut shop after its 1,600 outlets accumulated a debt of R750 crore and couldn't pay it back; Pantaloon Retail's gross debt of R6,300 crore means it has a debt/ebitda of an unviable 5.5, which is why the company is busy selling off stakes in group ventures; Shoppers Stop, about a fourth of Pantaloon by way of sales, has a lower, but equally uncomfortable, net debt/ebitda of 3.6 times.

There's also the fact that there's enough scope for kiranas to grow. With India's retail opportunity all set to grow from $490 billion this year to $810 billion by 2021, even assuming organised retail's share trebles to a really ambitious 20% by then, this still allows kiranas to increase sales by as much as 40% in real terms during this period—that's not small change by any means, and certainly not indicative of a sector under stress. And why should it be, given that, the way inner-city retail space is so limited, rentals can eat up as much as 30% of turnover, making it unviable for organised retail to be in city centres. Oh yes, given that just 22 cities are open to retail FDI, the at-risk market is just about $40 billion out of the total $490 billion retail market—so in the extremely unlikely event of all kiranas being driven out of business, we're still not talking of catastrophe. After all, for the kiranas to be driven out of business, this means Walmart will have to be offering 25-30% discounts over the kirana—surely the substantial consumer savings, and the dramatic fall in interest rates as a result, have to count for something?

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