A necessary purchase. A repeat purchase. An essential purchase. Combine these three and it’s not hard to see why retail businesses make a bold promise. Get a critical mass of consumers (and their data), persuade them to buy regularly and a 25-to-50-percent-a-year growth for the next decade is there for the taking. Few businesses hold such potential.
The latest to be snared into retail’s charms is the 153-year-old Tata Group which plans to make retail businesses and the consumer a key ingredient of its growth strategy over the next decade. It promises steady growth with stable cash flows and, if executed well, a high price-to earnings multiple. Within Bombay House, work on an app to link all of Tata’s consumer brands is underway. Also on the cards, according to media reports, are plans to buy out online grocer BigBasket and pharmacy e-retailer 1mg. If the deals don’t go through, an entry into grocery retail is still on the cards, but an organic roll-out would take longer to execute.
A large part of Tata Sons’ earnings come from businesses that are cyclical. While Tata Steel and Tata Motors gorge out disproportionate amounts of cash in an upcycle, a downcycle is equally brutal. Both require long investment cycles. In contrast, once consumers are hooked, retail has the potential to generate high returns with low incremental capital. Given this it’s hardly surprising that N Chandrasekaran, who took over as chairman of Tata Sons in February 2017, has chosen to keep the consumer at the core of his new businesses.
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