New Delhi, Aug. 6: Wal-Mart, the retail world’s behemoth from Bentonville, today tore down the barriers and unveiled plans to conquer Fortress India.
The $345-billion company has signed a formal agreement with Sunil Mittal’s Bharti Enterprises to establish wholesale stores and a back-end supply chain for retailers in India.
To be called Bharti Wal-Mart Private Ltd (BWML), the equal-stake joint venture will open its first wholesale facility by the end of 2008. The target is to open 10 to 15 wholesale facilities in seven years.
Indian laws allow foreign investment up to 51 per cent in wholesale and back-end supply chains but it is barred from front-end retail.
Bharti will also separately own and run retail stores, for which Wal-Mart will give technical support.
“We could use the Wal-Mart brand name for our front-end operations if we so desire,” Rajan Mittal, the managing director of Bharti Enterprises, told a TV channel soon after the two sides announced the deal.
The trick will be to use a franchise arrangement between the front-end retail arm and the joint venture. “If Nike, McDonald’s and Domino’s can do it, so can we,” Rajan Mittal said. Textile brands like Tommy Hilfiger and Marks and Spencer also use similar franchise arrangements.
“As of now, we have kept all possible options open. We haven’t decided whether the front-end stores will carry the Wal-Mart brand or be called something different,” he said.
Wal-Mart, based in Bentonville in Arkansas, would be a “natural choice” for a partner when India lifts restrictions on foreign direct investment, Mittal added.
“The wholesale facilities will be spread over 50,000 to 100,000 square feet, selling vegetables, groceries, fruits, staples, footwear, stationary, clothing, consumer durables and other products,” he said.
The depots, which could employ up to 5,000 people, are likely to come up in non-metro cities and towns. “We shall be sourcing products from small farmers, artisans and small manufacturers,” said Mittal.
The companies did not disclose the amount of investment in the business.
Raj Jain, the country president of Wal-Mart India, said the wholesale venture would cater to all retailers, including small grocers. “The wholesale business will cater not only to the organised retailers but also to small kirana stores, fruit and vegetable resellers, restaurants and other business owners,” Mittal said.
The move to cut open a deeply fragmented industry, which is dominated by family-run shops, has triggered political concerns and protests by small shop owners who fear big job losses. “The arrangement is a way to beat the formal ban on foreign investment in retail... we have been objecting to this,” CPM leader Nilotpal Basu said.
The Marxists have not only opposed FDI in retail but also demanded a regulatory mechanism to check large chains which they fear could make small grocers extinct.
Retail trade in India now accounts for around 11 per cent of the GDP and employs over 25 million people or 8 per cent of the total workforce. Analysts contend this figure could change dramatically — more share in the GDP and fewer employees overall — if transnationals come in.