The warm-up over, India's retail industry is revving up for its most exciting phase ever. (By M. Rajshekhar)

Consider this: through the 1990s, organised retail in India added just 1 million sq. ft. of space a year. The pace picked up from 2001 onwards. But estimates have it that in 2003 alone, a breathtaking 10 million sq. ft. was picked up by this fledgling industry. If you thought that was heady, think again. The most exciting phase for the retail industry lies ahead.

Over the next three years, a confluence of events will push organised retail into a new orbit. One, a series of glitzy malls has already begun to redefine the shopping habits of urban Indians. Some call it "shoppertainment" or shopping and entertainment - and it's quickly catching on. But guess what? Even till last year, the number of malls in operation was barely in double digits. This year at least 50 new malls - of 100,000 sq. ft. size and above - are slated to go into business in 2004. Retail consultants KSA Technopak estimates that another 200 malls will come up in 2005 and 2006. "In all, 40 million sq. ft. of organised retail space will enter the market in the next 3-4 years," says Devangshu Dutta of Third Eyesight, a retail and sourcing consultancy.

Two, the sudden ramp up in retail real estate could create over-supply. After all, not every mall owner will find it easy to seek tenants. That, in turn, could bring down property prices. And suddenly, experts reckon, the new economics could make it attractive for a new set of players to join the party, especially retail formats like furniture and consumer durables, which need a lot of space. So if apparel and grocery led Phase I of development, new categories like furniture, pharmacy and fast food could help propel growth in the near future.

Three, the early birds - retail chains like Shoppers' Stop, FoodWorld, Lifestyle and Pantaloons - are now well past the experimentation stage, and are findings ways to take their growth trajectories higher. Kishore Biyani, managing director, Pantaloon Retail, agrees: "There is a new sense of confidence in every Indian retailer. We now have formats that have been tried and tested." But that's a claim that very few other retailers can rightly make. While most of them have been largely risk averse and stuck to Western models like department stores and supermarkets, Biyani has tried innovating to discover what he loves to call the "pan-Indian model of retail". In 2002, after much trial and error, he appeared to have hit upon one such winning formula: the Big Bazaar hypermarket model. Today, the chain of seven Big Bazaar outlets contributes close to Rs. 4000 million to Pantaloon Retail's topline. Biyani says he plans to set up nine more by 2005.

It isn't just Pantaloons though. Much of this rapid scale-up across the sector is helped partly by the fact that organised retail is no longer starved of funds for expansion. The older players are generating more substantive cash flows than ever before. Also, says Bala Deshpande, director (investments), ICICI Ventures, "The favourable stockmarket performances of Trent and Pantaloons have helped loosen the purse strings of promoters and banks." RPG has also begun diverting its investments from Old Economy ventures to retail. Shoppers' Stop, in fact, is readying for an IPO this year. Even Pantaloon, which scared away most investors with its over-aggressive investment strategy, is now finding takers in the market.

So what's in store? Experts say that the current land grab will hit a higher pitch. Growth will attract newer players and fuel more growth. KSA Technopak CEO Arvind Singhal says: "The share of organised retail in the total retail pie is likely to grow from 2% now to 5-6% by 2007." In their latest Indian Retail Review, real estate consultants Knight Frank presage a share of 20% by 2010, perhaps a shade too optimistically.

But things are likely to hot up once global retailers can set up shop in India. Current FDI norms don't allow global retailers to step in, except for cash-and-carry formats, franchisee operations and special licences. Opinions differ on when the government will open the door. But even die-hard opponents of FDI concede that they won't be able to stall the move for more than two years. The €52-billion German giant Metro AG has entered in the cash-and-carry mode. French hypermarket chain Carrefour has set up a representative office to develop an entry strategy. There are several others tapping their feet outside the door, trying to listen in closely.

Indian retailers are fully aware that they have about two years. Hence the hurry to ramp up fast. The frenetic pace of expansion will, of course, throw up a new set of challenges.

What will these be? Come, grab a ringside view of this fast-changing battlescape.