Indian Retailing Suffers in the Slowdown

Across the subcontinent, merchants are closing outlets, deferring expansions, hastily restructuring operations, and laying off staff

By Nandini Lakshman

MIKE CLARKE/AFP/Getty Images

Just a year ago, the retail industry was the next big hope for India's economy. Stores were opening everywhere, with sprawling malls and tony boutiques holding glitzy launch parties across the country. Retailers bought up every inch of space in India's largest cities, sending real estate prices through the roof. Even India's small towns caught mall-mania. But as India's economy feels the impact of the global recession, Indian consumers are cutting back on spending, and retailers are facing a major slowdown.

Even with the weight of America's mighty Wal-Mart Stores (WMT) behind it, Bharti Enterprises is scaling back. Its Bharti Retail chain, for which Wal-Mart provides logistical and distribution support, plans to close 5 of its 28 Easy Day supermarkets in northern India. "Retail is no child's play," Sunil Mittal, chairman of Bharti Enterprises, said on television in early March. Indeed, in February a Wal-Mart-Bharti joint venture announced an extremely cautious plan to roll out just 10-15 of the BestPrice Modern Wholesale banners over the next seven years.

Pantaloon Retail, India's largest merchant, run by Kishore Biyani, the boldest opportunist in the business, is seeing a severe setback. The group—its top brands are retailer Pantaloon, discount supermarket Big Bazaar, and Central department stores—has cut back on expansion plans from 4 million square feet to 2 million between now and June 2010. "We will now look at smaller stores," Biyani. Same-store sales are way down from a year ago, so he is renegotiating rents and working on revenue share deals with his landlords. "I was an eternal optimist, but now I've become a realist," he says. "The current situation is tough, but it will turn around."

Heavy Toll on Jobs

The slowdown is aggravating the already high rate of unemployment in India—7.8% officially, but an estimated 22% unofficially. The Federation of Indian Exporters reckons that job losses could be as high as 10 million this year in industries including textiles, engineering, IT, and gems and jewelry. The Retailers Association of India has slashed growth estimates. The sector, which contributes 12% to the country's gross domestic product, employs 24 million, but only 500,000 work in the "organized sector," or what is modern retailing, according to retail consultant Technopak Advisors. While there are no official numbers on the retail job losses, industry experts say it is around 15%.

Private players and their organized retail chains account for just 4.5% of the $375 billion Indian retail landscape, but the downturn is more obvious in the smaller number of people who shop in branded stores. Shoppers Stop, an 18-year-old department store chain, has had a 15% drop in daily consumers, according to CEO Govind Shrikhande, prompting the company to close some of its airport shops and food outlets. And its two-year-old franchise partner—Britain-based Home Retail Group's Argos—exited India in January. An Argos statement said the trial "had not met the planned performance levels to support the investment required in the current Indian economic climate."