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Department Stores Comparison – China Vs India

March 3, 2009


We would like to present a comparison between China and India in the Departmental Store Business. This study concludes Retail as an unviable proposition but that is a fact and we have already seen what is happening in the Retail space. Here is the excerpt of the study.

All figures are in USD in the following analysis.

  • Capex (fixed assets only) / square foot – $20 for china where as it is $23 in India. We expect this will decline as input costs diminish
  • Working capital (Inventory only) / square foot – China $4, India $29. Inventory management is abysmal compared to peers – if this can be improved, store economics will significantly improve. Logistics management in India is very poor, given inter state tax laws, poor roads, improper ERP systems, etc. We remain concerned about this aspect of the retail industry
  • In India the total CAPEX / SFT costs $52 while in China its at just $24
  • Revenue / SFT is around $290 in China while its just $181 in India. Given that our disposable income levels are lower, low proportion of modern retail, we can expect improvement on this front.
  • Indian Departmental Stores clock higher gross margins at 37% compared to mere 20% by Chinese. This implies Indian retailers are highly dependent on Apparels 🙂

The problem that plagues retail in India has been succinctly summed up by retail industry veteran BS Nagesh, CEO of Shoppers Stop,

Ironically in India as of today the rental and operating costs have reached 3/5ths of European levels. Whereas the revenues are still at 1/5th or 2/5ths of such sales standards, thus making retail unviable in the short term.

To conclude, we will get more constructive on the retail sector in India when we see evidence of a) better inventory management, b) lower capex costs and c) ability to maintain gross margins despite the challenging environment.

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