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'Organised retail will grow in India'

October 25, 2007 11:41 IST
Ram Chandra Agarwal, CMD of Vishal Retail, exudes a quiet confidence. Around the time of the DLF mega issue, he created a flutter when his company's Rs 110 crore (Rs 1.1 billion) IPO was oversubscribed 81 times. Not without reason: Vishal has grown from a Rs 146 crore (Rs 1.46 billion) business in financial year 2005, to Rs 288 crore (Rs 2.88 billion) in FY06, and Rs 603 crore (Rs 6.03 billion) in FY07. Agarwal shares his views on Indian retail and his company's future with Outlook Money's Rajesh Kumar. Excerpts. 

Competition in retail is increasing with some of the country's biggest business houses venturing into it. How do you plan to stay ahead in a business, which, by nature, is a low-margin one?

We have the strength to fight the competition. Our company is an old player in this business. We have been in the market for the last 20 years and have a very experienced team that understands everything that is needed - the taste, price and fashion trends. I think we are equipped to meet any competition; our technology and teams are in place. We have the first mover advantage in the business, and we understand the Indian culture better. I think we can compete with any big player.

Why did you start with stores in smaller cites when consumption demand is much higher in larger cities? 

Per capita income in India is increasing, including in tier-II and tier-III cites. In these cities the competition is less, as are the rentals. It is very viable as a business proposition to open showrooms in these cites. 

Entry of big retailers in these markets would increase the rentals. Will this put further pressure on margins?

Yes, it will put pressure on the business and costs like rentals. But, I think we will continue to have the first mover advantage in these areas in terms of place, customer loyalty, product knowledge and customers choice. In every growing, competitive business, pressure on margins is bound to increase. It all depends on how you maintain your process - if you have good control on the process and supply chain, no one can beat you. Margins can fall, but not beyond a point where you start making losses. 

You also sell products under private labels. Do customers accept such products? 

Yes, they do. Customers understand quality and pricing. They know that the big brands source their products from the same factories as us. So, they know that there is no difference in the quality of a shirt that we sell at Rs 495 and a big brand at Rs 1,200.
They can see that the fabric and fabricator are same. Customers want value for money, and we believe that by selling under private labels we can transfer value to our customers.

Last year, 10 per cent of total sales came from private labels. We are targeting for the private label business to bring in 25 per cent of our total sales. 

Any plans for a joint venture with a foreign retailer? 

I think funds are available in India itself for any viable business. Other than funds, I don't think foreign companies can add any value to Indian retailers. To make use of experienced people, one can go to consultants, who will give the same expertise. I think Indian retailers are getting good experience themselves in all aspects of business, be it supply chain management, information technology or merchandising. 

What are your expansion plans?

We are thinking of going ahead with all the retail formats that are in operation abroad. This will include formats like convenience stores, fashion and lifestyle, cash and carry, and hypermarkets. The entire range will be coming at Vishal in the next six months. 

We are very aggressive on growth because the retail market in India is huge. Companies all over the world are eyeing the market here. We have the first mover advantage and we will continue to move fast and expand aggressively.

How much revenue and profits are you expecting in FY08 and FY09, in face of increasing competition?

We will be coming out with three years' guidance soon. We have been growing at around 100 per cent every year for the past three years, and we will maintain this growth in the next three to five years. The market is huge and our teams and processes are in the right places.

Big projections have been made for the Indian retail industry. There have, however, been public protests and a state government has asked retailers to shut shop. Under such a situation do you still think the projections will be met?

Some incidences have taken place here and there, but, I don't think this will stop the growth of the organised retail industry in India. The consumers are ready for it and there is political will as well. So, there is nothing to fear. A particular incident may have happened (in Uttar Pradesh), but organised retail is continuing to grow everywhere.