Reliance Industries Limited (RIL), the largest diversified private sector company of India by revenue, assets and profits, has announced their foray in to the retail sector, a sunrise area in the country. The market size of organised retailing in India is estimated to grow 32% year-on-year from $4 billion in 2005 to $60 billion in 2015, according to a recent report by JM Morgan Stanley, a financial services firm in India, joint venture between and Morgan Stanley. If we look at the total retail market of India, management consulting firm A.T. Kearney's annual study of retail investment in 30 emerging markets estimates it at $350 billion, which is expected to grow 13% this year. The study says that India's top five retailers together still account for less than 2% of the retail market.

Reliance Industries, the company that runs a vertically integrated petrochemical business, has its interests spanning across exploration and production, petrochemicals, textiles, infrastructure, and now retail also. Reliance has planned an investment of $5.5 billion (Rs. 250 billion) in the retail business over next few years, of which $2.2 billion (Rs. 100 billion) would come in from equity investments. The retail initiative of the group will be spear headed by Reliance Retail Ltd (RRL), which will be a 100% subsidiary of Reliance Industries Ltd (RIL), except for ESOPs.

Reliance plans to bring farmers, small shopkeepers and consumers in the same eco-system. It has planned to have a pan-India presence, covering 1,500 cities and towns. It will have a network of neighborhood convenience stores, supermarkets, specialty stores and hypermarkets.

The organised retailing initiative by the company is backed by next generation physical distribution system. The retail setup of Reliance would be logistic driven and would have complete integration up to farm level.

Reliance Retail will have a wide product portfolio across several verticals such as food and grocery, household items and home essentials, apparels & footwear, consumer durables, lifestyle products, energy products and services, travel services, entertainment & leisure, health and well-being products/services, educational products and services, etc. It will have both international and Indian brands belonging to mass market as well as luxury segments. The company has already initiated talks with luxury brands such as Giorgio Armani and Manolo Blahnik to market them in India. It also plans to buy consumer durable goods from China to sell under its own brand name, in order to take the advantage of low-cost production there. It has also chosen Thailand to make the country its procurement hub and would set up warehousing facilities there.

Company has already engaged about 2000 professionals in the venture and the figure is expected to reach at 10,000 professionals. Overall, it claims to offer employment to one million people over the next few years. Supported with strong logistics and high level of integration, the retail initiative of Reliance may turn out to be a high margin business.

India has recently allowed foreign direct investment (FDI) of up to 51% in single-brand retailer businesses, which is expected to pave the way for the entry of international brands such as Tommy Hilfiger, Nike etc. The current regulations allowed foreign retailers only to make franchise agreements or operate wholesale stores instead of owning retail stores in India.  It is, however, expected that the rules would be relaxed further with the time to allow global players such as the world’s largest retailer Wal-Mart and Britain's largest supermarket chain Tesco to set up shops here. Reliance Retail is expected to command large market share before the full-fledged entry of the foreign players in the segment.

An economy growing at a brisk pace and a sizable middle class that has growing aspirations, as it becomes increasingly affluent, certainly offer a conducive environment for Reliance to implement its retail strategy. Reliance is known for its large scale and fast-pace execution capabilities. Considering its deep pocket and its earlier success in retailing the mobile services of Reliance Infocomm (now the company has separated from the group under a demerger scheme following ownership controversies), which was the dream project of Reliance Industries Chairman Mukesh Ambani, Reliance Retail has all the potential to become the market leader in this sunrise sector.