Is Reliance Retail’s performance matching Mukesh Ambani’s expectations?

Growth in our organised retail business is reflective of the changing habits and increasing aspirations of millions of fellow Indians who seek modern conveniences without losing focus on value. In a short period and as a reflection of consumer preferences, Reliance now has leadership positions in food, apparel and consumer electronics retailing in the country. With over 1,300 stores operational and more being opened, Reliance is positioned to be India’s premier retailer even as organised retailing becomes a more meaningful part of the changing consumer preference in the country,” says Mukesh Ambani’s in his Letter to Shareholders published in the 2011-12 Annual Report of Reliance Industries Limited (RIL), India’s second largest company (by sales), after the public sector Indian Oil Corporation.

In the first time in six years since Reliance entered the retail business, this business has managed to get almost 10% share of Mr. Ambani’s Letter to Shareholders and more than 15% share of the Business Performance portion of the Management’s Discussion & Analysis section in the latest Annual Report. More importantly, RIL has invested Rs. 5027 crores ($967 million) in the retail business last fiscal – more than it ever did earlier.

Does this mean that the time has come for Reliance Retail to shed its diapers and start taking big boy steps? After all, a six year old cannot be considered a baby any more.

With a sales turnover of Rs. 7599 crores ($1461 million) in FY12, RIL’s retail business is a small drop in the ocean for this megacorp, representing just 2.24% of its total turnover, not even finding a separate mention in RIL’s segment wise revenue.

And if RIL itself continues to grow at a CAGR of 30.2% (like it has grown over the last five years), then a growth of only 25% per annum in the retail business will just make the share of the retail business smaller by the year.

Despite being present across several formats, Reliance Retail now ranks as only the fifth largest Indian retailer, after Future Group (Pantaloon Retail India Limited), Malabar Gold, Kalyan Jewelers and Titan Industries Limited.

It is senseless comparing Reliance with other Indian retailers, as it is bound to become No.1 in the next 2-3 years. But we all know that this will not satisfy Mukesh Ambani’s ambition. For him, the real competition is not Future Group – it is Walmart.

So how does Reliance’s retail business compare with Walmart and other global retail giants?  The table below shows Reliance’s turnover compared with the Top 4 global retailers and the Top 4 Asian retailers – with additional comparisons based on the purchasing power parity (PPP) index, as well as the Big Mac Index.







Walmart USA




Tesco UK




Carrefour France




Metro Germany




Seven & I Holdings Japan




Aeon Japan




Yamada Denki Japan




Suning Appliance China




Reliance Retail India




Asipac Research, Data based on published information available


Obviously, Reliance is currently nowhere on the radar. Even on a PPP basis, Reliance’s revenues are less than 1% of Walmart’s, just about 3.4% of Tesco’s and less than 9% of the revenues of China’s largest retailer Suning Appliance. Can Reliance therefore do a Pearl Harbour on the American behemoth Walmart? Seems highly unlikely for the next 30 years, even on a PPP basis.

However, if Reliance continues to grow at a steady 25% p.a. for the next several years, it can probably cross Asia’s largest retailer Seven & I Holdings (the operator of 7-Eleven stores, Denny’s restaurants and other retail formats) on a PPP basis in 16 years and on real revenue terms in 22 years, assuming that Seven & I will grow at only 4% p.a.  With the same growth rates, Reliance can also overtake Europe’s largest retailer Tesco in 20 years on a PPP basis, and 25 years on real revenue terms.

What will make Reliance a global retail giant and make all of us (Indians) proud? For this, we need to do an analysis of the company’s different retail formats and predict what may be a winning strategy going forward.

The Annual Report says: “Despite challenging macro-economic conditions most of the retail formats have delivered well over 20% same store sales growth. Same stores sales growth has been well above the growth declared by peer retailers in respective formats which indicates the robustness of the business model.” Let us take a close look.

Reliance Fresh, Reliance Super and Reliance Mart

The food & grocery (F&G) business contributed more than 51% to Reliance Retail’s revenues in FY12. With sales of almost Rs.4000 crores, Reliance is now clearly No.2 in F&G retailing, behind Future Group, which was estimated to have sales of more than Rs.7000 crores from its four F&G formats (Big Bazaar, Food Bazaar, KB’s Fairprice and Food Hall) during the comparative 12 months (Future Group’s listed flagship company, Pantaloon Retail India Limited, has its fiscal year from July to June, compared to the standard April to March fiscal year for Reliance).

It will probably take another three years for Reliance to overtake Future Group as India’s largest food & grocery retailer.  As it is probably quite well known to most of the readers of this publication, Reliance has had three major changes at the top layer of management in this business and this is perhaps the main cause that Reliance is still more than 40% behind Future Group in F&G retailing.

At the time of commencement of operations, the F&G business was led by former Unilever executive Gunender Kapur, who ran it for the first three years. He was reporting to the Late Raghu Pillai, who was with Reliance Retail from inception.

In December 2009, Reliance brought in four senior executives (two Thai nationals and two Britishers) from Tesco Lotus (Thailand) to spearhead this business. Tesco Lotus operates 660+ F&G stores in Thailand, including 88 hypermarkets. Both Pillai and Kapur quit Reliance Retail within a few months.

About 21 months later, the top management was rejigged again. This time, perhaps realizing that it needed people experienced in a far bigger market than Thailand, Reliance brought in Rob Cissell, former COO of Walmart China, as CEO, and Shawn Gray, vice president of store operations of the same company, as COO. Walmart China has around 333 outlets, generating $7.5 billion in revenues. Cissell was responsible for store operations, merchandising, marketing and supply chain at Walmart China. Before going to China, Cissell held senior positions in different British retailers. Gray was with Walmart for over 19 years, having spent nearly 13 years in China where he led the team that opened and integrated hypermarkets.

It perhaps makes better sense for Reliance’s F&G business to be led by senior executives from Walmart China, than by people from Thailand. However, it has (unfortunately) taken five years for Reliance to realize this. And this has hurt the company.

The change is already becoming visible to consumers – the foods sections and the FMCG section of the new (or revamped) Reliance Marts (hypermarkets) are amongst the best in the country. Now Cissell and Gray must revamp all the Reliance Fresh stores and start opening new ones at underserviced locations. They must follow Sam Walton’s strategy of servicing small towns and semi-urban areas instead of concentrating on the Top 30 cities, as Reliance has done in the past. They must identify new locations from a chopper or small aircraft rather than from a car.

As the chart shows, as per Asipac’s estimates, Reliance already has a 12.7% share of the organized food & grocery retail market, but only a 0.5% share of the total market. This is the opportunity.  China’s largest F&G retailer, Bailian Group, had revenues of RMB 141.5 billion ($22.4 billion) in 2011, giving them a 2.3% share of the $975 billion Chinese F&G market. If Reliance can replicate this in India in the next five years, its F&G business alone can have revenues of Rs.33,000 crores.

I would like to point out that RIL’s annual report states that the Indian F&G market is worth Rs.16,25,000 crores, which translates to about 68% of the total Indian retail market. A correction is needed here. We have been reading about food & grocery being 65-70% of the total retail market for the last two decades, if not more. India has moved on. The share of F&G in total retail is not as high today, as it used to be 2-3 decades ago. At that time, mobile phones and laptops did not exist, there were no branded apparel and lots more that we consume today.

As per Asipac’s research, the personal automobile retail industry alone is estimated to be worth Rs.2,33,500 crores, and the CDIT (consumer durables, IT and telecom) retail sector is estimated to be worth Rs.1,89,300 crores.

The total consumption of food & grocery (including FMCG products) in the country is estimated at Rs.11,30,000 crores, or about Rs.9200 per capita. However, the retail market comprises just about 73% of consumption (or Rs.8,26,600 crores), as the rest is accounted for by farmers or fisherman consuming their own produce. Thus, the F&G retail market accounts for only 33.4% of the total Indian retail market, and not 65-70%, which was the case 20-30 years ago. Reliance should be happy that it has a smaller market to conquer.

Before I move on to the next format, I would like to suggest that Reliance should look at the possibility of creating an Indian equivalent of 7-Eleven, the small neighbourhood convenience store which is ever so popular across the rest of Asia. There are more than 42,000 7-Eleven stores in 16 countries worldwide, with 13,300+ stores in Japan alone and more than 6500 in Thailand. The chain has global revenues of approximately $112 billion, putting it at almost the second spot amongst global retailers, if all franchisee sales were consolidated with the Japanese parent, Seven & I Holdings.

Given the size of India, there is easily a market for 20,000+ such stores in the country. Being much smaller in size compared with Reliance Fresh, finding real estate will not be such a challenge. Like in other countries, 50-70% of the stores could be franchised. The average sale of a 7-Eleven store in Thailand is 31.7 million Baht. In India, such stores can easily achieve sales of Rs.25 million apiece. Thus, 20,000 stores would translate to sales of Rs.50,000 crores. If Reliance does implement this idea, I will send them an invoice for the advisory services.

Reliance Digital

Perhaps, the most successful amongst all of Reliance’s retail businesses is its CDIT format – Reliance Digital. This business achieved a turnover of Rs.1249 crores, including its servicing business resQ, in FY12. From a total of 48 stores (31 Reliance Digital and 17 iStore) at the end of FY11, the CDIT segment almost doubled total store count to 94 (75 Reliance Digital and 19 iStore) at the end of FY12. Opening 44 Reliance Digital stores in a year – one every 8.3 days – was a feat in itself.

The credit for this stupendous growth goes to Brian Bade, an American who joined Reliance Digital as its CEO in August 2010. Bade had worked at the now defunct American CDIT retail giant Circuit City for more than 17 years, starting as a District Manager in 1991, and rising up in 2007 to the position of vice president responsible for sales development and merchandising for all of Circuit City’s 712 stores. For a year before joining Reliance, Bade also served as vice president at Big Lots Stores, a $5.2 billion discount retailer in USA.

While Reliance Digital is now the No.1 large format (average 7500+ square feet) CDIT retailer in India in terms of number of stores (compared with 72 stores of Croma, a joint venture between Tata and Woolworth of Australia), it still lags behind Croma in revenue terms – Croma had revenues of Rs.1970 crores in FY12. Further, Croma’s revenue per store is almost 70% higher than that of Reliance Digital.

The Indian CDIT retail market is estimated to be worth Rs.1,89,300 crores, as per Asipac’s research. The organised sector has just 19% market share. In a category where consumers would like to buy from a “reliable” source, there is no reason why the organized sector cannot capture 50-60% of the market.

The total market is estimated to reach Rs.3,90,000 crores in five years. So, if the organized sector can capture 60% of this market in five years, this would translate to revenues of Rs.234,000 crores. And the market leader should ideally have a 15% share, or revenues of Rs.35,000 crores. (Note: Croma already has 5.5% share of the organised market)

Japan’s Yamada Denki has 2700+ stores and revenues of more than Rs.1,40,000 crores. China’s Suning Appliance has revenues of Rs.1,28,700 crores from 1300+ stores. There is no reason why Reliance Digital cannot reach revenues of Rs.35,000 crores in five year or even lesser time. Will Reliance reach this milestone first or Croma? This will truly be a battle of the titans.

Reliance Trends

The apparel arm of Reliance Retail has also been an above average performer. In terms of number of stores, Reliance Trends (with 91 stores) is now larger than Max (68 stores), Pantaloon (65 + 21 factory outlets), Westside (62), Shoppers Stop (51), Globus (35) and Lifestyle (33). This in itself is a commendable feat, considering that all the other retailers named here have been in business much longer. As many as 48 stores were open during FY12, rivalling the pace of Reliance Digital in terms of expansion.

However, while Reliance Trends may be No.1 in terms of stores, its per store sales are much lower than most of its peers – namely Pantaloon, Westside and Max.

Japanese value fashion giant Uniqlo, whose business is similar to that of Reliance Trends, has 1700+ company operated stores worldwide, with sales of more than Rs.55,000 crores. Value fashion retailing has huge potential in our country, given that urban India alone has more than 120 million consumers who like to shop in modern retail outlets, but are also seeking value. In comparison, Japan’s urban population is just 85 million.

So, if Uniqlo can have 1213 stores serving 85 million consumers (one for every 70,000 persons), why can’t Reliance Trends have at least 857 stores (one for every 140,000 persons, or half the ratio of Uniqlo stores in Japan)? If it manages to reach that number in five years, with an average per store sales growth of 12% p.a., this value fashion retailer can achieve revenues of more than Rs.11,000 crores.

Uniqlo is not the only example. American retail group TJX has 1753 stores of TJ Maxx and Marshalls (both discount fashion retaiers) in USA, and 215 stores of Winners (also a discount fashion retailer) in Canada. Its European subsidiary TK Maxx has 307 stores. As per TJX’s 2011 Annual Report, 37% of Americans shopped at a TJ Maxx or Marshalls store in 2010.

The total apparel and fashion (A&F) retail market in India is estimated by Asipac to be worth Rs.5,95,000 crores. Of this, the organised sector is estimated to have just 5.77% share. With deeper pockets than others in the business, Reliance can take the leadership position. However, it cannot address a Rs.5,95,000 crore market with just one format which averages a store size of 16,000 square feet. Uniqlo’s largest store occupies 53,400 square feet. TJ Maxx has an average store size of 30,000 square feet; Marshalls and TK Maxx have 32,000 square feet each.

In RIL’s annual report, it is stated that the overall apparel market in India was estimated at Rs.175,000 crores in 2011. Without knowing the source of this estimate, I wish to categorically state that it is way off the mark. A total market size of Rs.1,75,000 crores would put average per capita consumption at just Rs.1423 per annum. How can this be believed? This figure is close to the bare minimum spent by the 400 million deprived people in India on must-have clothing.

If Reliance has to capture a substantial chunk of the Rs.5,95,000 crore Indian A&F market, it must come up with more formats in this segment. And there are opportunities galore.

Reliance Trends, along with Lifestyle, Shoppers Stop, Pantaloon, Marks & Spencer, Westside and Max, are all catering to the 22 million “urban upper middle class” population.  As per Asipac’s research, this section of the population is estimated to have a total consumption expenditure of about Rs.4,65,000 crores, of which apparel & fashion is estimated at about Rs.40,000 crores. The 167 million “urban middle class” either shops at discount formats (such as Big Bazaar or other hypermarkets or Brand Factory) or at unorganised retail outlets.

In comparison, the 10.5 million “urban rich” are estimated to have a total consumption expenditure of about Rs.5,03,000 crores, of which apparel & fashion is estimated at about Rs.65,500 crores. Even though this market is 64% larger than the “urban upper middle class”, no retailer is catering to this segment.

What I am suggesting is that Reliance should seriously consider opening department stores to cater to the “urban rich”. Not pseudo department stores like the ones we have in India (where more than 80% of the merchandise is apparel), but proper department stores, which sell apparel, furniture, home appliances, electronics, hardware, toiletries, cosmetics, jewellery, toys and sporting goods, merchandise that is generally sold in department stores worldwide. If we include all of this, the “urban rich” buy Rs.2,20,000 worth of such merchandise annually. If one includes some amount of food & grocery (which many department stores sell), we are talking about a market of almost Rs.2,50,000 crores.

Since there is no competition in this segment, the task is not difficult. As the rich don’t mind traveling a bit (most have chauffer driven cars), Reliance would only need to open 3-4 stores of 150,000 – 200,000 square feet each in NCR and Mumbai, 2-3 each in Bangalore, Chennai, Kolkata, Hyderbad and Pune, and 1-2 each in Ahmedabad, Jaipur, Surat, Nagpur, Lucknow, Ludhiana, Indore and Vizag. So we are talking a total of 30 stores in 15 cities, occupying a total of about 5 million square feet.

This “upscale” department store chain should contribute revenues of about Rs.12,000 crores. Together with the value fashion format Reliance Trends, Reliance can look forward to achieving sales of Rs.23,000 crores in the apparel & fashion segment.

Reliance Jewels

What could have been a jewel in Reliance Retail’s crown is perhaps its biggest failure. With sales of just Rs.475 crores, Reliance Jewels does not even figure amongst the Top 30 organised sector jewellers in India. Compared to market leader Malabar Gold & Diamonds (estimated sales Rs.8800 crores in FY12 from only Indian stores), its turnover is just 5.4%. Compared to its more comparable peer Tanishq (sales of Rs.7064 crores in FY12), from where it poached most of its senior executives, its turnover is just 6.7%. In fact, Reliance Retail’s total turnover from all formats is less than that of these two jewellery retailers.

Skeptics may argue that Malabar Gold & Diamonds and Tanishq have been in the business much longer. But then, so is the case of Future Group vs Reliance’s F&G formats, or eZone vs Reliance Digital, or Westside vs Reliance Trends, or Titan Eye+ vs Vision Express.

Apart from other factors, one of the most important factors for the success of a jewellery retail business is the ability to invest – and who better than Reliance as far as this is concerned? It is therefore inexcusable that Reliance Jewels has manged a turnover of only Rs.475 crores, in a total market size of almost Rs. 2 lakh crores, where the organised market comprises Rs.82,730 crores.

Reliance Jewels’ share of the organised jewellery retail market of just 0.6% is much lower than the market shares of other Reliance Retail formats in their respective segments, and less than a third of Reliance Retail’s market share of the total Indian organised retail sector.

China’s Chow Tai Fook, with 1450+ points of sale across 320 cities in China and 60+ stores in Hong Kong, and sales of about Rs.23,000 crores, is the world’s largest jewellery retailer.  Tiffany & Co., with global sales of about Rs.19,000 crores, is the second largest jewellery retailer in the world.

But we don’t need international comparisons in a segment where as many as 18 Indian jewellery retailers have turnovers of more than Rs.1000 crores each, and the Top 5 more than Rs.3000 crores each.

Malabar Gold & Diamonds will most likely cross a turnover of Rs.10,000 crores this fiscal within India. There is no reason why Reliance Jewels should be aiming at less than this figure in five years. In order to achieve this, it will have to get its act together.

Reliance Footprint

This is another of Reliance’s formats that has done reasonably well, by carving a niche for itself in a sub-segment not addressed by any others – of being a sort of multi-brand value superstore in the footwear segment.

With a turnover of Rs.155 crores giving it a 3.2% share of the organised footwear market, Reliance Footprint has done reasonably well. However, eight other retailers/brands (Bata, Reebok-Adidas, Metro-Mochi, Khadims, Woodland, Liberty, Nike and Sreeleathers) are ahead of Reliance Footprint in terms of turnover.  Of these, the legendary Bata, with a turnover of Rs.1659 crores (12 months ending March 2012) from 1300+ stores, is almost 11 times larger.

Like Reliance Trends and Reliance Digital, this Reliance format also added 50 stores this year, more than doubling its stores to a total count of 88. But Reliance Footprint has a long way to go, as Bata has 1300+ stores, Khadims has 630+, Liberty and Woodland about 350 each, and Metro-Mochi 215 stores.

Internationally, a similar format to Reliance Footprint is Famous Footwear in USA. Part of Brown Shoe Co., this 1089-store chain had a turnover of about Rs.7600 crores in 2011. Average store size is 6900 square feet, compared to about 4000 square feet in the case of Reliance Footprint.  Another American retailer Designer Shoe Warehouse has 335 stores averaging a size of 22,000 square feet. UK’s Shoe Zone has 570 stores. The world market leader in this segment is Payless ShoeSource (PSS), with a whopping 4300+ stores in 34 countries across the world. The average size of a Payless ShoeSource store in USA is 3200 square feet and in international markets 2800 square feet. Payless’ domestic operations had a turnover of about Rs.10,300 crores from 3642 stores in USA. Their international operations had a turnover of about Rs.2440 crores from 661 stores.

So, whether we compare it with international value footwear retailers or with Indian footwear single brand or multibrand retailers, Reliance Footprint still has a long way to go, both in terms of the number of stores and turnover. There is no reason why this retailer cannot aim for a turnover of Rs.5,000 crores in five years, by when the Indian footwear market would have crossed Rs.1,00,000 crores.

Reliance Timeout

With a 5.3% share of the organised retail market in the segment it caters to, Reliance Timeout comes second only to Reliance’s F&G business in terms of market share capture. However, a turnover of less than Rs.100 crores in a Rs.89,000 crore total market means it still has a long way to go.

This retailer grew much slower than its counterparts – perhaps due to the fact that, globally, retailers in this segment are facing challenges due to eBooks, MP3 downloads and all kinds of other impediments brought about by the internet. Only time will tell whether Timeout will survive – after all, many global giants in the books & music retail segement are floundering.

Other Formats

Reliance Living, Reliance Home Kitchen and Reliance Wellness have all been disasters and it is not clear if Reliance will continue these businesses.

Reliance Brands has done reasonably well by bringing to India such iconic brands as Diesel, Timberland, Steve Madden, Brooks Brothers, London Fog, Quiksilver, Paul & Shark, Roxy, Thomas Pink and Ocean Pacific. This business could easily give Reliance revenues of Rs.3000+ crores in five years.

Hamleys has been somewhat of a disaster in the country. Three years after Reliance got this iconic British toy retailer to India, only two stores have opened – one each at Mumbai and Chennai – while the opportunity exists to open stores in at least five other cities. Dubai alone has two Hamleys stores.

Marks & Spancer has done much better in India after forging a joint venture with Reliance, compared with its earlier avataar of franchising the concept to Planet Retail. This retailer is likely to do even better by shedding its inhibitions and opening larger stores – after all, its average store size of 15,000 square feet in India does not do justice to the fact that M&S is opening stores of 70,000 – 180,000 square feet in the UK.

The Vision Express joint venture has done very well, with 155 stores now operational across India.  At its rate of growth, this retailer is on track to surpass Titan Eye+ and become the largest eyewear retailer in the country.


In summary, what has been presented here is not just an in-depth analysis of Reliance Retail’s performance, but also a potential roadmap for the company to achieve a sales turnover of Rs.1,60,000 crores in five years – 21 times its present turnover.

If the parent RIL continues to grow at 30.2% p.a., it will have a total turnover of Rs.12,71,000 crores in FY17. At Rs.1,60,000 crores, the retail business will contribute 12.6% to the parent’s topline and will thus be a part of the segment-wise financial reporting of RIL.



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