(Updates with closing share prices in ninth paragraph.)
Feb. 21 (Bloomberg) -- Future Value Retail Ltd., a subsidiary of India’s largest retailer Pantaloon Retail India Ltd., plans to open at least 65 new stores in 18 months as consumer demand and retail sales in the nation grow.
The company plans to add 40 Big Bazaar supermarkets and 25 Fashion@Big Bazaar clothing stores, Chief Executive Officer Sadashiv Nayak said in an interview on Feb. 17, without specifying how much the company would invest in the expansion.
Adding multiple stores in cities will help consumers move to modern retail stores, Nayak said. “As the country becomes younger, we will soon experience a generation which will say out of five visits to the market three should be to modern trade,” he said.
India’s retail market, which is estimated to grow to 26 trillion rupees ($529 billion) in 2014 from 16.9 trillion rupees in 2010, according to a January report by Netscribes India Pvt., is dominated by small family run stores. Organized retail accounts for about 5 percent of the total Indian market, according to the Associated Chambers of Commerce and Industry of India.
“The management has clearly indicated its mandate of adding space in the formats that require lower investment and have a higher churn,” analysts Bharat Chhoda and Dhvani Modi of ICICIDirect wrote in a note on Feb. 16. “This move will enable the company to achieve topline growth and also reduce the working capital requirements.”
Most of the new stores will be in large or so-called Tier I cities, which contribute to about 70 percent of the company’s business, Nayak said. The retailer sees an opportunity for selling fashion in smaller cities, he said.
“When you move to the Tier II and Tier III towns, there aren’t enough options for people to buy fashion,” he said. “Tier III is where we need to discover the new engine of growth. They will never be the core engine for growth today, but we’re investing for two years down.”
The retailer operates 160 Big Bazaars, more than 200 Food Bazaars, 65 Pantaloons outlets and 21 Central departmental stores. They also have more than 20 standalone Fashion@Big Bazaar stores. The Mumbai-based company added 19 Big Bazaars and six standalone Fashion@Big Bazaar outlets in the 12 months ended June 2011, according to Pantaloon’s annual report.
Pantaloon rose 1.6 percent to 193.4 rupees at the close in Mumbai trading. The stock has gained 50 percent since the beginning of this year and the benchmark BSE India Sensitive Index gained 19 percent.
Higher consumption and urbanization will encourage the growth of retail in the country, Nayak said.
“The country is becoming younger and we are seeing people move to cities,” he said. “We’re seeing a need for people to express their affluence through clothes or their homes. There is the ability to consume more food. The need to eat more, and many more cuisines, is surely now becoming a part of life in Tier I and Tier II towns.”
India’s consumer spending is likely to almost quadruple by 2020 to $3.6 trillion spurred by economic growth and rising incomes, the Boston Consulting Group said in a report this month. The expenditure is set to expand from $991 billion in 2010, according to the report.
High interest costs eroded earnings for Pantaloon in the three months ended Dec. 31, and the company posted a loss of 79.6 million rupees in the period, compared with a profit of 124 million rupees a year earlier. Pantaloon plans to offer promotions to customers to boost sales, and may exit its non- core businesses to lower its debt, the company said in a note to investors after its earnings.
--Editors: Suresh Seshadri, Anjali Cordeiro
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