Most of the big retail brands are struggling to survive in India, as they are still figuring out which revenue models will work in the country
Remember when organised retail made its entry into the country, it was touted as the best thing that had ever happened to the industry? Now, the dust is settling and a number of large players in this segment are taking a serious re-look at their plans and are re-examining their revenue models as push has finally come to shove.
The Indian organised retail industry is in turmoil, as most big retailers are still trying to figure out which revenue model will work in India. Indiabulls, one of the largest real-estate players, has shut down one of its largest lifestyle stores—‘Centre One’ at Pune and is now evaluating whether this format of retail merchandising will work in the country. Retailers like Aditya Birla Retail, Future Group, Reliance Retail and Spencer’s Retail have either closed down or shifted hundreds of their stores in the recent past to stem losses.
In recent months, several retail firms have either gone bust or have been closing down some stores, scaling back expansion plans and even laying off employees in an attempt to cut costs and to beat the continuing acute downturn in the business, which began with the slowdown in the economy.
“In our view, the only thing that works is a price advantage; rentals can be absorbed if they are not exorbitant. The lifestyle format does hinge on price advantage, and hence is not successful. In the long run, we believe that the wholesale format is the one that will be able to achieve some scale,” said Gagan Banga, chief executive officer, Indiabulls Financial Services.
Indiabulls took over the retail business from Piramyd Stores and re-branded it as Indiabulls Megastore (lifestyle) and Indiabulls Mart (supermarkets).
In March 2010, Indiabulls’ retail arm—Store One Retail had forayed into wholesale trading. “We have already exited our small format model (and we have converted it into a cash-and-carry model). We have now come to realise that only the cash-and-carry model will really work in the long term (in India),” added Mr Banga.
Consulting firm KPMG had predicted in March that the slowdown in the retail business is expected to last for another 12-18 months.
Spencer’s Retail Ltd also shut down its retail store in Shivaji Nagar at Pune. According to the company, rentals were not the issue for shutting down the store. “The catchment (the number of footfalls) was unviable in that area. The rental was not a major issue for shutting down the store,” said Shakuntala Sarkar, head, corporate communications, Spencer’s Retail.
In the past one year, Aditya Birla Retail has closed 39 stores (which include supermarkets and hypermarkets). The company wants to discontinue unprofitable stores.
Thomas Varghese, CEO, Aditya Birla Retail had earlier told Moneylife, “This decision of shutting down stores was a part of the company’s policy to close down unviable retail stores.”
Reliance Industries Ltd (RIL) was also very aggressive on expansion when it entered the retail sector in 2006. It opened around 1,000 stores in 86 cities over three years. But its retail arm faced political turmoil in Uttar Pradesh and West Bengal.
The company is again back with a new plan of hypermarkets, which will have a floor space of minimum 80,000 sq ft. Reliance Retail currently has stores in many formats, including small neighbourhood stores (Reliance Fresh), consumer goods (Reliance Digital) and clothing (Reliance Trends). It will use the Reliance Mart brand for its hypermarkets.
ICICI Prudential collected Rs303 crore as first-year premium in the first month of the current fiscal while SBI Life earned a first-year premium worth Rs185 crore
ICICI Prudential has pipped SBI Life to regain the top position among private insurance players, garnering new business worth Rs303 crore as first-year premium in April this year, reports PTI.
ICICI Prudential collected Rs303 crore as first-year premium in the first month of the current fiscal, compared to Rs135 crore in the corresponding month last year, according to monthly data released by the Insurance Regulatory and Development Authority (IRDA).
On the other hand, SBI Life, promoted by the country's largest lender, State Bank of India SBI), earned a first-year premium worth Rs185 crore compared to Rs460 crore a year ago.
In 2009-10, SBI Life emerged as the biggest player. The insurer collected Rs7,041 crore as first-year premium, while ICICI Prudential managed to mop up a Rs6,334 crore premium in the last fiscal.
Overall, in April this year, the life insurance industry registered a growth of 60% in new business compared to the corresponding month last year.
The 23 life insurers collectively mopped up a first-year premium of Rs5,746 crore in April against Rs3,601 crore in the same month of the previous year.
The growth is significant, as there is turf war between market regulator Securities and Exchange Board of India (SEBI) and insurance watchdog IRDA over regulation of Unit Linked Insurance Plan (ULIP) products, which account for more than half of the total business of life insurance companies.
The difference between SEBI and IRDA arose when the former banned 14 life insurers from raising money from ULIPs in April, following which the latter asked the companies to ignore the order.
Subsequently, the finance ministry intervened and the two regulators agreed to jointly seek a legally binding mandate from the court as to who has jurisdiction over ULIPs.
Till then, status quo ante was restored by the finance ministry.
After the agreement, SEBI amended its order and banned only new ULIPs launched after 9th April, when the first order of SEBI was issued.
In April this year, the largest insurer Life Insurance Corporation of India’s (LIC) first year premium stood at Rs4,173 crore, compared to Rs2,113 crore in the corresponding month last year, translating into a growth of around 100%.
The market share of LIC has also increased to over 72% during the month, compared to around 58% in the same period of the previous year.
In the first month of the current fiscal, the 22 private insurers together could mop up first-year premium of just Rs1,572 crore, compared to Rs1,488 crore in the year-ago, period, translating into a growth of over 5%.
The Centre has constituted a committee under the Unique Identification Authority of India (UIDAI) chairman Nandan Nilekani to work out an electronic toll collection system for plugging leakages in the system
The government today said that toll collection on national highways will jump five-fold to Rs10,000 crore in next four years, but leakage is still a concern, for which new policy measures will be put in place, reports PTI.
Toll collection is a key instrument for the government to attract private investment, road transport and highways minister Kamal Nath told PTI.
"We have constituted a committee under Unique Identification Authority of India (UIDAI) chairman Nandan Nilekani to work out an electronic toll collection system for plugging leakages that could be as high as 20%," he said.
The committee is likely to give its report by next month.
"Our estimated toll collection will be close to Rs10,000 crore per year by the fifth year of United Progressive Alliance (UPA)-II," he said, adding this was based on bringing an estimated 35,000 km of roads under the Operate, Maintain and Toll (OMT) system for private investors, he added.
"We are looking at overhauling the toll policy. We are in the process of formulating a policy... a new policy as to how to collect the toll by the OMT process," Mr Nath said.
The OMT aims at bringing the Indian toll collection system at par with the international tolling standards, he said.
He dismissed suggestions that putting the vast network of highways under the toll system could be a burden on the common man. "There is a maintenance cost that is paid from the toll... good roads would help save a huge quantity of petrol and diesel... on the contrary, it would help people," he said.
Mr Nath, however, was concerned over the tendency of avoiding the toll, saying that leakage for this or other reasons was a matter of concern. "At present, the leakage in some areas is as high as 20%," he said.
The National Highways Authority of India (NHAI) could only collect about Rs3,500 crore in the last two financial years from 8,500 km of toll highways.
"NHAI collected Rs1,936 crore as toll in 2009-10, while the collection in the previous fiscal stood at Rs1,600 crore," a senior road ministry official said.
India has over 70,000 km of highways and proposes to significantly enhance the network by constructing 20 km of roads every day in the next five years.
At present, the process of crossing toll plazas is time-consuming, as one is required to pay several times to complete a journey on a highway stretch. Besides, different collection systems, including manual systems, lead to revenue leakage.
The Planning Commission and prime minister-headed Committee on Infrastructure have been expressing concern over toll leakages estimated at over Rs1,500 crore.