Retailers Take a Slower Road in India

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Web Mart Inc., which unveiled plans to enter India with a joint-venture partner two years ago amid great fanfare, will open its first wholesale store next year, but it won't comment on future plans. Three Build a bear workshop Inc. franchises in India opened by Murjani Group have closed. Straps, a chain run by India's Oswal Group that featured Wonderbra lingerie from U.S.-based Hanesbrand Inc., has closed its more than 20 stores. Big German retailer Metro AG, after five years here, operates only four wholesale stores; the company says it is taking its time developing its Indian business.

India's retail industry -- including everything from carrots to cars -- clocks around $350 billion a year in sales. That figure had been expected to double in the next seven years. But now, some retail executives are taking a closer look. Growth is less than hoped for. And thousands of new shops have sprouted in the past few years, so there are more players competing for the same consumer.
Eric Bellman/The Wall Street Journal
The Grand Sigma Mall in Bangalore. Indian retailing isn't growing as fast as many had expected.
Just three years ago, an explosion of conferences, analyst reports, Web sites and magazines predicted the arrival of a new Indian consumer who would change the global retail landscape. The first modern retail stores here were so popular that many entrepreneurs thought people would buy almost anything at any price. They were wrong, as both large and small retailers are discovering. For some, the forecast retail boom that promised jobs for Indians and a new market for global retail giants is already a bust.
"I was an eternal optimist; now I have become a realist," says Kishore Biyani, chairman of Pantaloon Retail India Ltd., India's largest retailer by sales, which has revamped its expansion plans as it discovered more about Indian consumers. "Everybody has miscalculated."
Most retailers say they are grappling with the same problems: rising costs and fewer buyers. In the early days of the boom, retail rents and salaries soared, though recently they have started to come down a bit. Many outlets discovered that consumers didn't really want their products. And unlike shoppers in Asia's other booming economy, China, Indians are rarely willing to pay three to 10 times more for an international brand than for its domestic equivalent. The average Chinese consumer has more disposable income, and more than a decade extra of experience with international brands.
Ritu Sureka opened her home-furnishings store "All Living" in the Grand Sigma Mall, Bangalore's newest, in 2005. She was sure the Indian tech capital's programmers and call-center workers would spend their rising salaries on stylish lamps and pillows for their new homes. Now she is advertising a 70%-off sale, and still doesn't make enough money to cover the rent. "I think this retail thing has been a failure," the 45-year-old says.
Nevertheless, India still generates excitement among some investors. Earlier this month, both British retailer Tesco PLC and Vornado Realty Trust, one of the largest mall developers in the U.S., announced plans to enter the country with local partners.
Some retailers, especially those catering to budget shoppers, are thriving. And deep-pocketed companies like grocery-store chains are willing to shoulder losses for a few years, assuming Indians will become accustomed to mall and supermarket shopping instead of buying at the country's millions of mom-and-pop stores.
Shoppers Stop Ltd., one of the first companies in India to attempt modern clothing and houseware chains, has posted net losses for the past two quarters. Some companies that still have big plans, including Indiabulls Financial Services Ltd. and Aditya Birla Group, have changed tack, closing some stores and making management changes.
"We all have to go through some restructuring and shake-up," says Thomas Varghese, chief executive of the Aditya Birla retail unit, which has more than 500 grocery stores. Most were built in the past two years, and few are profitable yet. "The Indian consumer is a damn tough customer."
If retail growth sputters, India will lose an important avenue for growth to trickle down to the masses: the jobs retail provides.
The country's recent economic expansion has been fueled largely by its service sector, and hasn't created millions of manufacturing and export jobs in the way China's boom has. But the Indian government had counted on retailing to soak up millions of rural and young job seekers. Two years ago, Mukesh Ambani, chairman of Reliance Industries Ltd., projected that thousands of his new stores would provide jobs for "500,000 young boys and girls in the next few years." Since that speech, the company has built around 700 stores, an impressive number but far from earlier targets.
In the Grand Sigma Mall, not far from Ms. Sureka's shop, an outlet that sold VF Corp.'s Wrangler Jeans has pulled out. On the ground floor, other stores are empty, including a former Reebok store.
"Everything is overpriced here," says Vignesh Vishwanath, 21, a computer programmer for Microsoft, drinking coffee with a friend at the mall. "This coffee, for example, is 85 rupees here. At the cafe near my house it is only 60 rupees. You can never compete with the local market."
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