Friday, October 11, 2013

Wal-Mart's Other Path to Indian Consumers

Wal-Mart Stores problems in India have so far been a byword for the emerging economy's perils. But to some extent, its latest move in India suggests one area of promise.
Wal-Mart limited itself to a 50-50 joint venture with India's Bharti group to run wholesale stores, where foreign investment was allowed, probably with the idea of expanding into retail. Yet the rules on sourcing, which Wal-Mart has openly criticized, are now an obstacle for that expansion—and Wal-Mart still hasn't opened a retail outlet. On Wednesday, the company said it would buy out Bharti to own 100% of this wholesale business.
Wal-Mart's experience shows the frustrations of the Indian retail sector. Yet there may be rewards from sticking around in wholesale.
wholesalers benefit from the one constituency that's politically hurting retailers: mom-and-pop stores. Wholesalers sell mostly to these small businesses, and that's in turn where most consumers go. In India's fragmented retail sector, about 15 million small outlets account for 92% of sales.
Besides Wal-Mart, Metro Cash and Carry is a beneficiary of this trend. The German chain has been expanding its wholesale stores in India.
Investors need to wait for progress in Indian retail. But there's more than one way to play the long-term Indian consumer story.

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