Wal-Mart likely to wait for further easing of the multi-brand retail FDI policy; Bharti may well exit the segment.
Wal-Mart will likely wait for the 2014 elections to finish and the new government to take office before making its move in organised retail, believe analysts.
For, the world’s largest retailer expects further easing of the foreign direct investment (FDI) policy, particularly on aspects like the stake size and extent of compulsory local sourcing. After all, more than a year after 51% FDI in retail was permitted, not a single application has been received so far, experts said.
Although a votary of FDI in multi-brand retail, Wal-Mart may be compelled to go slow on its India retail plans for now as, post the break-up with Bharti, the world’s largest retailer will have to start from scratch.
“Wal-Mart will be on the lookout for a strategic partner now,” said Rachna Nath, leader retail and consumers, PwC India.
Another expert said on condition of anonymity, “Wal-Mart will likely look for a comparatively smaller player rather than aiming to go pan-India. It might look at players such as Spencer’s and Total that have a strong regional penetration.”
As for Bharti, the group’s announcement that it has hired Raj Jain, former CEO of Walmart India, as an advisor coincided with news that it has called off its retail joint venture with Jain’s former employer.
At Bharti, Jain will likely build and sustain back-end operations, experts said.
Interestingly, several industry players believe that Bharti may well quit the business of organised retail.
Harminder Sahni of Wazir Advisors, for one, said, “Bharti will try and make efforts to improve the business, but it’s unlikely that they will stay in the retail business for very long now that they don’t have a partner. With only 200 stores that continue to be loss-making, it makes no sense for them to continue retail operations for very long.”
Experts said the Bharti-Wal-Mart joint venture appeared ill-fated ever since it got mired in controversies like alleged violation of foreign exchange laws and charges of bribery and illegal lobbying.
Worse, expectations of each other did not match, said Saloni Nangia, president, Technopak. “For Wal-Mart, the focus in India is going to be on improving its image.”
Sahni said government policy is not yet conducive for entry of global multi-brand retail players. “For players like Wal-Mart, their biggest strengths include global sourcing. Now, if you have to rely on local sourcing in India, then their margins will get squeezed. Multi-brand retailers work on very thin margins. Even though they are bullish on the Indian market, they won’t make the move if the business isn’t profitable.”
THE MARRIAGE THAT WAS
August 2007
Wal-mart and Bharti set up 50:50 joint venture for cash-and-carry business in India
May 2009
First cash-and-carry store launched in Amritsar
March 2010
Wal-mart invests $100 mn through compulsorily convertible debentures (CCDs) in Cedar Support Services, a Bharti Group firm that ois alleged to have been carrying multi-brand retail services .
September 2012
CPI Rajya Sabha MP P Achuthan questions Walmart’s investment in Cedar Support Services
Govt allows up to 51% FDI in multi-brand retail
November 2012
Bharti Walmart suspends five top executives as investigations for bribery allegations starts in India, after Mexico & China
December 2012
Government starts lobbying probe against Wal-mart
June 2013
Walmart India CEO Raj Jain fired. Ramnik Narsey replaces Jain.
September 2013
Deadline for converting funds into equities lent through CCD ends
October 2013
The partnership is called off
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