Future-Bharti merger to lead to further consolidation in retail

The Future Retail-Bharti Retail merger is expected to lead to further consolidation in the $ 500 billion retail industry which is starved for funds.

Indian retailers have always found peculiar problems regarding funding--lack of depth in Indian markets for retail and global retailers staying away from the Indian retail due to policy issues and troubles in their own markets.

"Consolidation is long awaited. While new international players are yet to come in, existing ones have gone away. It is question of who blinks first," said Rachna Nath, Leader- Retail, PwC India.

While Carrefour of France exited the country, UK's Tesco is treading slowly in Indian market. US-based Walmart is focusing only on cash and carry operations.

Said Arvind Singhal, chairman of Technopak Advisors, a retail consultant: "We haven't had many billion dollar retail companies. Indian retailers require some kind of scale which allow them to grow faster.The merger will encourage many more such deals in the next 12-18 months in fashion and supermarket.

Consolidation in the industry began when Aditya Birla bought out South based Thrinetra Super Retail for its retail foray in 2007. Kishore Biyani's Future Retail recently bought Bengaluru based Nilgiris supermarkets to strenghten its footfold in South.

But some like Sanjay Badhe, a Mumbai based consultant, say its too early to comment. "Most of them are making losses and looking for foreign partners that has not happened. There could be some natural synergies but I can not see them," Badhe said.

Aditya Birla Retail (ABR), Spencer's Retail, Raheja-owned Hypercity and Tata-led Star Bazaar, all of which either launched or started serious expansion during 2006-07 are still making losses.

ABR, set up seven years earlier, posted a 20% growth in sales over a year earlier for 2013-14. Its losses widened from Rs 583 crore in 2012-13 to Rs 596 crore in FY14. With 490 supermarkets and 14 hypermarkets under the More brand, it was looking to break even in FY13.

Spencer's Retail, an RP-Sanjiv Goenka Group company, which opened stores under the Spencer's brand in 2006, posted eight% growth in FY14 sales numbers and the chain's losses came down from Rs 209 crore in FY13 to Rs 166 crore in FY14, according to its parent CESC's Qualified Institutional Placement documents.

Spencer's, which missed its break-even targets on a couple of occasions in the past, is looking to slip out of the red in the next couple of quarters.