Wal-Mart Stores Inc. (WMT:US), the world’s largest retailer, is “optimistic” India will allow foreign direct investment in the country’s retail industry.
“I’m optimistic that FDI in retail and across multitudes of industries will occur,” Scott Price, head of the retailer’s Asia operations, said today in an interview in Vladivostok, Russia, while attending the Asia-Pacific Economic Cooperation summit.
India currently bars foreign retailers such as Wal-Mart that sell multiple brands from investing in supermarkets. A loosening of those restrictions would allow companies including Wal-Mart and Carrefour SA (CA) access to a retail market that is currently estimated at $505 billion according to Technopak Advisors Pvt. Wal-Mart currently has wholesale outlets in India through a joint venture with local partner Bharti Enterprises.
“I’m optimistic because I think it’s inevitable,” said Price, without specifying when he expects the market to open. “India will want to improve the lot and life of its population.”
Indian retailers would benefit from a loosening of rules because foreign firms would require local partners.
Pantaloon Retail India Ltd. (PF), the country’s largest retailer, climbed as much as 2.3 percent in Mumbai trading before closing little changed. Trent Ltd. (TRENT) gained as much as 2.4 percent.
India’s government last year was forced to reverse a November decision to allow foreign investment of as much as 51 percent in stores selling more than one brand, after political opposition paralyzed parliament.
Supporters of foreign investment in retail say the global chains are likely to invest in trucking and distribution systems in India, where government estimates show 40 percent of fruit and vegetables rot before being sold because of the lack of cold-storage facilities and poor transport infrastructure.
India is “three times the population, one third the land mass” compared with the U.S., Price said. “With that density of population, these sorts of properly regulated openings will only benefit.”
Global consumer companies are eager to tap Asian markets for growth as economies in the developed world have stalled. Net sales at the company’s international business rose 6.4 percent in the three months ended July 31, topping a 3.8 percent rise in the U.S.|
Wal-Mart is seeing Chinese customers acting “a little bit more cautious” and seeking to save money as economic growth slows at home and overseas, Price said of Asia’s largest economy. “The average Chinese is being a little bit more careful about their money,” he said.
Wal-Mart’s comments reflect pressure on China’s retail industry as consumers pull back amid the country’s slowest economic growth in three years. Companies including milk seller China Mengniu Dairy Co. (2319) and luxury watch retailer Hengdeli Holdings Ltd. (3389) have reported slower sales growth.
Wal-Mart still sees “enormous” potential for its China business, Price said. “GDP is still high, you don’t see a lot of high levels of unemployment.”
The company is pushing its traditional everyday low pricing strategy in China, instead of relying on temporary sales and discounts. ’’We are very much trying to formalize a much stronger price perception,’’ he said.
A slow recovery abroad and weak investment at home will keep weighing on Chinese factories, China’s Ministry of Industry and Information Technology said in a statement on its website this week. The ministry’s forecast indicates that the government recognizes that the slowdown has accelerated after growth dipped to a three-year low of 7.6 percent last quarter.
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