With revenues of Rs7,599 crore in fiscal 2012, Reliance’s retail business contributes just 2.24% of the megacorp’s turnover, and ranks as the fifth largest Indian retailer, after Future Group, Malabar Gold, Kalyan Jewellers and Titan. It is senseless comparing Reliance with Indian retailers, as it is likely to become No.1 in 2-3 years. But this will not satisfy Mukesh Ambani, for whom the real competition is Walmart. So how does Reliance Retail compare with Walmart and other global retail giants? The table alongside compares Reliance Retail with the Top 4 global and Top 4 Asian retailers – with additional comparisons based on purchasing power parity (PPP) and the Big Mac Index.
Reliance Retail is nowhere on the radar. Even on a PPP basis, its revenues are less than 1% of Walmart’s and less than 9% of the revenues of China’s Suning Appliance. However, if it grows at 25% per annum for several years, Reliance can cross Asian No.1 Seven & I Holdings (the owner of 7-Eleven stores) on a PPP basis in 16 years and on real revenue in 22 years, assuming that Seven & I will grow at only 4% per annum What will make Reliance a global retail giant and make Indians proud? For this, we need to analyse the company’s different retail formats.
Reliance Fresh, Reliance Super and Reliance Mart
Food and grocery (F&G) business contributed more than 51% to Reliance Retail’s revenues in fiscal 2012. It is now No.2 in this segment, behind Future Group. It recently brought in two top executives from the $7.5 billion Walmart China to head this business. They must follow Sam Walton’s strategy of servicing small towns and semi-urban areas instead of concentrating on the Top 30 cities, as Reliance had done in the past.
China’s Bailian Group had revenues of $22.4 billion in 2011, giving it 2.3% share of the $975 billion F&G market. If Reliance can replicate this in India in five years, its F&G business can have revenues of Rs33,000 crore. Reliance should also look at the possibility of creating an Indian equivalent of 7-Eleven, the small convenience store popular across Asia. There are 42,000+ 7-Eleven stores in 16 countries, with 13,300+ in Japan alone. There is a market for 20,000+ such stores in India, which can achieve sales of Rs50,000 crore.
Perhaps, the most successful format is Reliance Digital, which achieved a turnover of Rs1,249 crore. The segment almost doubled total store count to 94 at the end of fiscal 2012. While Reliance Digital is now the No.1 large format consumer durables and information technology-related consumer durables (CDIT) retailer in terms of stores (compared with 72 stores of Croma), in revenue terms, it still lags behind Croma, which had revenues of Rs1,970 crore in fiscal 2012.
The CDIT retail market is estimated at Rs1.89 lakh crore and expected to reach Rs3.9 lakh crore in five years, as per Asipac research. The organised sector has 19% share. In a category where consumers would like to buy from a “reliable” source, the organised sector can easily capture 60% of the market in five years, with revenues of Rs2.34 lakh crore and the market leader can achieve revenues of Rs35,000 crore.
Japan’s Yamada Denki has revenues of Rs1.4 lakh crore from 2700+ stores. China’s Suning Appliance has revenues of Rs1.28 lakh crore from 1300+ stores. Will Reliance Digital reach the Rs35,000 crore milestone first or Croma?
In terms of store count, Reliance Trends (with 91 stores) is now larger than Max (68 stores), Pantaloon (65), Westside (62), Shoppers Stop (51), Globus (35) and Lifestyle (33). This is commendable, considering that the others have been in business much longer.
If value fashion giant Uniqlo can have 1,213 stores serving 85 million Japanese consumers (one for every 70,000 persons), why can’t Reliance Trends have 857 stores (one for every 1.4 lakh persons in urban India)? If it reaches that number in five years, Reliance Trends can achieve revenues of more than Rs11,000 crore.
The apparel and fashion (A&F) retail market is estimated by Asipac at Rs5.95 lakh crore. No retailer can address such a large market with just one format. There are opportunities galore. All A&F retailers named here cater to the 22 million “urban upper middle class”, who consume A&F goods of about Rs40,000 crore per annum. In comparison, the 10.5 million “urban rich” consume A&F goods of about Rs65,500 crore per annum. Even though this market is 64% larger, no retailer caters to it.
To address this untapped market, Reliance should consider opening department stores like the ones in developed countries, which sell apparel, furniture, home appliances, electronics, hardware, toiletries, cosmetics, jewellery, toys and sporting goods. This “upscale” department store chain can achieve revenues of about Rs12,000 crore. Together with Reliance Trends, it amounts to sales of Rs23,000 crore in the A&F segment.
What could have been a jewel in its crown is perhaps its biggest failure. With sales of just Rs475 crore in a market of almost Rs2 lakh crore, Reliance Jewels does not even figure amongst the top 30 organised jewellers in India. Compared to Malabar Gold & Diamonds (estimated sales: Rs8,800 crore from India only), its turnover is just 5.4%.
China’s Chow Tai Fook, with sales of about Rs23,000 crore, is the world’s largest jewellery retailer. Tiffany & Co, with sales of about Rs19,000 crore, is the second largest. But we don’t need international comparisons in a segment where as many as 18 Indian retailers have turnovers of more than Rs1,000 crore each, and the top 5 more than Rs3,000 crore each. Malabar Gold & Diamonds will most likely cross Rs10,000 crore this fiscal. There is no reason why Reliance Jewels should be aiming at less than this in five years.
With sales of Rs155 crore and 3.2% share of the organised footwear market, Reliance Footprint has done reasonably well. It ranks ninth in terms of turnover. Bata, with sales of Rs1,659 crore, is almost 11 times larger. In terms of stores, Reliance Footprint, with 88 stores, has a long way to go, as Bata has 1,300+, Khadims 630+, Liberty and Woodland about 350 each, and Metro-Mochi 215 stores.
The world leader in value footwear retailing is Payless ShoeSource, with sales of about Rs12,700 crore from 4,300+ stores in 34 countries. There is no reason why Reliance Footprint cannot aim for Rs5,000 crore in five years, by when the Indian footwear market would have crossed Rs1 lakh crore.
With a turnover of less than Rs100 crore in a Rs89,000 crore market, Reliance Timeout has a long way to go. Worldwide, retailers in this segment are facing challenges brought about by the internet. Only time will tell whether Timeout will survive.
Reliance Living, Reliance Home Kitchen and Reliance Wellness have all been disappointing and it is not clear if Reliance will continue these businesses.
Reliance Brands has done reasonably well by bringing to India iconic brands such as Diesel, Timberland, Steve Madden, Brooks Brothers, London Fog, Quiksilver, Paul &Shark, Roxy, etc. This business could easily give Reliance revenues of Rs3000+ crore in five years.
What has been presented here is not just an analysis of Reliance Retail’s performance, but also a potential roadmap to achieve a turnover of Rs1.6 lakh crore in five years – 21 times its present turnover. If the parent continues to grow at 30.2% per annum, it will have a total turnover of Rs12.71 lakh crore in fiscal 2017. At Rs1.6 lakh crore, the retail business will contribute 12.6% to the parent’s topline. I hope Manoj Modi, head of Reliance’s retail businesses, is reading this.
The writer is chairman ofAsipac, India’s leading malldevelopment managers andretail research consultants, andretail industry commentator.