Investing in Retail sector?

Here is another great piece of news that will make all those people happy who believe in the India story and its continuity:

News Item Begins:
Aeon Retail wants slice of Indian retail pie?

India's great retail rush continues and it’s not just the western giants like Wal-Mart and Carrefour but even East Asian retailers want a slice of the Indian retail pie. The Japan’s largest retailer, Aeon, wants to start operations in India reports CNBC-TV18.

With Japan’s consumers buying less and less in the last few years and Japanese businesses consequently almost stagnating. It’s not surprising that Japan’s biggest retailer wants to head to India. Aeon Retail, a conglomerate of 157 companies with sales of USD 37 billion dollars in fiscal year 2006 has recently conducted its due diligence on the Indian market. Japanese trade experts also tell us the company is now in the process of identifying a local joint venture partner for its Indian retail foray.

News Item Ends:

It’s a great news, because that shows how well the Indian markets are targeted and are very successful in attracting foreign investments not only from the Western giants but now also from the Eastern counterparts like Japan. Chinese products are already making waves in the Indian markets, though a bit unofficially and in an unorganized manner. Japanese retail giant now seeks to enter Indian market and have already conducted lots of studies and surveys in India, so as to formulate an efficient strategy to invest.

However, the most important point that we people fail to notice in the above news item is copied below:

With Japan’s consumers buying less and less in the last few years and Japanese businesses consequently almost stagnating. It’s not surprising that Japan’s biggest retailer wants to head to India.

Now, the interesting point to observe is that we are talking about the business of basic necessities of life, which is the primary stuff the retail stores sell. The news item says that Japan’s consumers are buying less and less. Can there be a slowdown in demands of such products? Well, that the case we have noticed here.

Secondly, we are talking about Japan, which is considered to be one of the top three economies of the world. (I guess Japan is placed 2nd, immediately after the 1st ranked US). With such a large economic value, Japanese consumers are buying less and less over the last few years, which is forcing the largest retail investor of Japan to look overseas.

It is strikingly unbelievable, that in one of the world largest economies, consumers are spending less, so less that giant investors have to head to other countries for investments and maintain profits from their business. Strange, unbelievable, but VERY TRUE.

The news item extends further:
Aeon, which operates some of Japan’s most popular retail chains like Jusco and Topvalu, last year, also acquired the management rights for French retailer Carrefour. But business for the company hasn't been too good and profits in the last four years have been more or less flat with over ninety percent of revenues for the company coming from Japan. Aeon has in the last few years started retail operations in countries like Malaysia, Thailand, Hong Kong, China and Taiwan and India, say sources, is next.

The company we are talking about is not a small company. It has influential presence in a large number of countries. It has the power to buy management rights of French giant retailer Carrefour. Yet, it is being beaten up in its home country, a country which is one of the largest economies of the world.

Size does not matter when it comes to investment and company management. There is no guarantee that a strategy today works tomorrow, a success story in one place can continue in another place as well.

People who still believe that the 8, 9 or 10% growth rate of India is fuelled by all the sectors like IT, Retail, Real Estate, Banking, Telecom, etc., once again I would like to remind that you all may be right in your belief for an uncertain period of time. But if you go to the crux of the issue, it all boils down to the high level of salaries that are being offered by software jobs - The jobs which pay high salary because of foreign inflows in dollars, pounds and euros and which enables people to have enough disposable income.

The more competitive a sector gets, the more risk is there for the investors of the stocks in that sector, because the more chances are there that company profits and performance may be hit by the competitors. Let’s keep a vigil on our investments, play safe and not make highly ambitious and impractical assumptions that the success story will continue forever.

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