As we laid out in Part One, JSW Steel, the flagship company of $11 billion Indian conglomerate JSW Group, plans to open as many as 5,000 shops in the next five years under its retail thrust – not an altogether difficult milestone, given the progress made by JSW Shoppe. [Ed. note: does the Shoppe sell chocolates as well? With that name, hope so…]
Initially, the branding is hoped to give end users value-add products in the construction sector, according to company sources. The branded format will be scaled up in the future to cater to customized needs across product categories and sectors, i.e. hot rolled, cold rolled, color coated and TMT, etc.
A report in LiveMint quoting analysts said JSW’s move was timely, especially as steel capacity will stand at 100 million tons by the year ending March 31, 2016.
According to Chirag Shah, Director of Research at investment bank Barclays Capital, steel was always bought, never (aggressively) sold. Now, companies were trying to reach out to consumers and educate them on possible applications.
He pointed out that retail steel was like the “one rupee shampoo sachet”—it will not increase sales in a big way immediately, but the segment offered longer-range benefit.
Retail selling has provided some relief for under-stress steel companies in India, and was growing even in today’s times of slowdown. One report said the segment was contributing as much as 25 percent to the total sales for private steelmakers including Essar Steel and JSW.
Essar Steel, in fact, was one of the first producers to enter this segment, and has a network of 68 of its own stores and about 300 franchisee outlets in metro areas like Mumbai.
Two things seem to be working in favor of the Indian retail steel business – the degree of economic growth in rural areas which is comparatively more than the urban areas, and the lack of access to steel products for end consumers, which represents a vast, untapped market. JSW’s betting on the low, per capita consumption of steel, which stands at 15 kg in the rural areas. The global steel per capita consumption was at 217 kg, and in the US, it was at 306 kg, according to data from CARE Research.
So while bulk customers of steel like automotive and infrastructure may have taken a back seat in the buying of steel for now, retail is propping up the business to an extent for now. But one would also be mistaken to believe that it is all about retail from now on.
A relatively new concept in India’s steel story, it can, by offering a hitherto unavailable market, only boost the revenue of a steel company.