It is not just escalating real estate costs but also supply hurdles that are causing delays for Reliance retail’s hypermarket and apparel plans.

Big does not always get you the best bargains and the heat is on for the Reliance retail with competition increasing everyday and margins under presser. Now comes a delay in executing its plans for both hypermarkets and its apparel brand.

Hypermarkets, which were to be launched in April will now come up end July while the apparel brand will come to the market by November, it was earlier planned for August.

According to sources, what making it tough for the Reliance is negotiating for lower prices for household products and cloths with manufacturers.

And that is why the company wants to focus on private labels, to begin with along with more local garment brands than go for luxury and global ones. “We will be focusing on domestic brands and private labels,” said Raghu Pillai, CEO, Reliance Retail.

New format stores

The hypermarkets will come up by the end of the month with Ahmedabad as first stop. According to sources new format stores Reliance Super will offer grocery, health & beauty, clothing and stationery, but no fruit or vegetables, in a bid to appease the protestors.

These stores will range from 4,000-10,000 square feet. While there are no protests at the digital stores expensive land deals have also put expansion on hold.

Sources say that the average rate of real estate is 125 sq feet while the company makes just about Rs 200 a sq feet. Add wages and promotion costs to that and there is hardly any margin left.

What is clear is that even though low margins are a reality, no one expected real estate costs to hit Reliance so hard. Reliance was surely hoping its size and scale would give it the muscle power to get better bargains but since the entire sector is struggling, looks like no one is taking chances.

Source by ndtvprofit.com