Chennai's acted as an incubator for the Indian retail industry, with the city witnessing pioneering initiatives in the retail industry, be it consumer durables, general provisions or books. One consequence has been the development of notable brands of homegrown retailers: Viveks, Food World, Subiksha, Landmark and Odyssey, among others.
The year 2005 has been a watershed for local retail industry as the prospect of impending Foreign Direct Investment in the retail sector has unleashed far reaching changes among Chennai's retailers.
Two well-known names, Landmark and Odyssey, saw changes in ownership. Others such as Viveks and Sree Krishna Collection moved swiftly to raise resources and expand their presence to attain critical mass before the entry of global giants.
Racing towards critical mass
Gibson G Vedamani, chief executive officer of Retailers Association of India, says that 2005 is a year of reckoning for organised retailing with mergers and acquisition happening across segments to leverage synergies of larger players and have a pan-India presence.
B A Kodandarama Setty, chairman and managing director of Vivek Limited, the retailer who enjoys the distinction of owning the oldest and largest electronic and home appliances, says that the retailing industry, that was lacklustre a few years ago, is gaining momentum at a rapid pace. Vivek also owns under its retail brand Jainsons and Premier.
Setty says that retailing is a volume game and therefore growing in size does matter. This may be by acquiring smaller companies or tapping the capital market with the foresight that huge investment will be required for growth and expansion of the company.
Vivek is in the process of considering a private equity partner or an initial public offering, which is expected towards the end of the current fiscal.
According to the estimates of RAI, the organised retail is poised to grow to Rs 1,50,000 crore (Rs 1500 billion) in the next two years from the present Rs 30,000 crore (Rs 300 billion). Among developing markets, India will be the second largest destination for retail.
Series of changes in 2005
The year 2005 started with rumours of RPG divesting its stake in Food World. Ending the five months of speculations, RPG offloaded 51 per cent stake on May 12.
The five-year-old joint venture partner, Dairy Farm International, with whom RPG had promoted FoodWorld stores, will retain the brand name and 46 of the 93 stores. The remaining stores of RPG partner will be called Spencer's, the oldest name in retailing in the country that has a history of around 150 years. Tata had picked up the stake diluted by RPG.
On August 31, Trent Ltd acquired a 76 per cent strategic stake in Landmark and its subsidiary firms, for a consideration of Rs 103.6 crore (Rs 1.04 billion).
Jayasankar Subramaniam of Landmark, says the promoters chose to dilute its stake for continuity of the brand, stability, scalability and to have a pan-India presence. Landmark was established in 1987 in Nungabakkam with a 5,500-sq ft store. It has four stores: two in Chennai, one in Bangalore at Forum and one promoted in an equal joint venture with Emami in Kolkata.
Subramaniam points out that there will be better utilisation of funds and a control mechanism with the induction of the new partner.
Landmark, with its subsidiary firms, has clocked a turnover of Rs 95 crore (Rs 950 million) in 2004-05, which is projected to increase to Rs 130 crore (Rs 1.3 billion) in the current year.
Just a month after Landmark's deal, in the best of deals in the book retailing, Hyderabad-based newspaper, Deccan Chronicle, in an all cash deal, has bought over Odyssey chain of bookstores for Rs 61.5 crore (Rs 615 million). Deccan Chronicle Holdings will pay Rs 61.2 crore (Rs 612 million) at a face value share of Re 1, comprising 1,15,14,140 shares of Odyssey.
Odyssey has 12 stores - five in Chennai, three in Hyderabad and one each in Varansi, Trichy, Coimbatore and Salem. T Ashwin, promoter of Odyssey, who will continue to be the managing director of Odyssey India, says that there is an increasing need for large format bookstores, which caters to a lifestyle segment as well.
In a nutshell
The feeling that FDI in retail industry is around the corner has triggered much activity among Chennai's well-known retailers. Even well established brands have been acquired by bigger pan-India retailers, some local companies have chosen to ramp up to compete with the big boys.
