The government?s decision to allow global retail chains to own a 100% stake in Indian retail chains that sell single-branded goods will help global apparel and lifestyle brands such as Marks & Spencer, Zara, Louis Vutton, Nike and Adidas, among others, to wrest complete management control in companies they own 49% under the earlier law.
Retail experts, however, are sceptical of the riders in the new guidelines and say there could be more roadblocks for 100% foreign direct investment.
?The 30% local sourcing is a dampener in the FDI guideline,? says Purnendu Kumar, vice-president, retail, at consultancy Technopak Advisors. In the apparel and lifestyle segment, which has maximum foreign players now, it is fairly impossible to source stuff from small and medium enterprises.
?This could act as a major deterrent for major brands to scale up. Most foreign players haven?t worked on their distribution and supply chain,? says Kumar. Besides that, there will always be a quality mismatch between international and SME goods.
There may not be any immediate action from new entrants or any drastic change among existing partners. ?I don?t see any big bang development in the next six months,? says Anil Talreja, director at audit and consulting firm Deloitte.
Foreign companies may increase their stake to 70% or 76%, but they will not ignore the Indian partner.
The Indian partner has a certain penetration level, accessibility to markets, infrastructure and logistics network and may also have the 30% rider satisfied, he adds.
Experts say there will be more activity in the home, apparel and lifestyle segments. FDI will offer more choices to Indian consumers, but won?t necessarily reduce prices of goods.
Global retail giants like Ikea, Hennes & Mauritz (H&M), GAP, Prada, Emilo Pucci, Brooks Brothers, Krizia, Abercrombie and Arcadia are waiting to enter the Indian market, but are likely to go through the JV route, instead of setting up operations independently.
?The domestic partner adds value in terms of knowledge about geographies, consumer tastes and buying patterns,? says Technopak?s Kumar. Companies like Reliance Brands drives the business. Reliance Brands operates multiple JVs with high-end players like Diesel, Timberland, Paul & Shark, Quiksilver and Steve Madden and is likely to rope in more brands. Luxury women?s clothing brand Bon Chic Bon Genre (BCBG) from France is talks with the company, a people familiar with the development says.
?There are many fashion brands in the pipeline, both in menswear and womenswear.? Darshan Mehta, president & chief executive officer of Reliance Brands had earlier told FE.
He, however, refused to name them owing to a non-disclosure agreement.
Ever since 51% foreign investment in single-brand retail was allowed, companies like DLF Brands and Reliance Brands have been aggressive in tying up with upscale international brands.
?DLF, with its abundant and upscale retail space, offers a great proposition to the prospective brand and Reliance has the scale and capital to grow these brands,? says a fashion and apparel expert on condition of anonymity.
While 100% FDI in single-brand retail opens up opportunities for foreign players to have a taste of the Indian market, the riders in the cabinet guidelines pose practical challenges for companies which can only be handled gradually.