The recent decision of the government — that of approving 100% FDI in single-brand retail through the automatic route — has left the Indian retail industry with a positive outlook. But what concrete difference will it make?
If you are a retailer hunting for growth, then this may be a ripe time to be in India. The government recently gave its nod to 100% FDI (foreign direct investment) in single-brand retailing (from the earlier 49% cap in a local single-brand retail chain) through the automatic route unlike earlier, where one needed the government’s approval for the same. This is remarkable news for new global entrants into India, as well as existing players who have been milking the Indian shopper’s aspirational need for international brands.
The Indian retail market is expected to grow at a CAGR of 10% to touch $1.6 trillion by 2026 from $641 billion in 2016, as per an IBEF report which further states that the retail market accounts for over 10% of the country’s gross domestic product (GDP) and around 8% of employment.
The upward trend
Today, India is seen as the world’s fifth-largest global destination in the retail space. In the last couple of years, international single-brand retailers like IKEA and H&M have entered India in the hope to capture a slice of the market which is seeing an upward consumption trend. Healthy economic growth, changing demographic profiles, increasing disposable incomes, urbanisation as well as changing consumer tastes are some of the factors driving growth in the organised retail market in the country. Anil Talreja, partner, Deloitte India says, “There are proposals awaiting approvals from the global boards of several large retail companies for investment in India. This announcement will definitely make them move towards a decision to invest and tap the large Indian retail market.”
For a brand, this is a positive announcement as this will help the organised sector grow by allowing more players to participate. This FDI approval makes that experimentation process more automatic and economical from a resource management perspective, as per industry players. Also, if a brand has a financial alignment with an investor, it can now close that deal much faster, instead of months of going back and forth with the government and risk jeopardising the deal.
Benetton India, which entered the country in 1992, thanks to liberalisation and growth of the Indian economy, currently is available across 800 door stores. The company’s MD and CEO, Sundeep Chugh says, “Certainly, the grant on the single-brand retail for us would mean expansion and an integrated consumer experience.” The brand feels that this will translate into getting closer to tech-savvy consumers which would in turn mean nurturing its exclusive business outlets (EBOs) through an omnichannel route.
“As Cravatex Brands, a brand platform, we are happy that the government is taking steps to ease the mechanics of doing business in India. We see a bright future in partnering with global brands, retailers and investors,” says Rohan Batra, MD, Fila.
On the flipside
However, not everyone is satisfied with this move. Retailers Association of India’s (RAI) CEO Kumar Rajagopalan says, “There is not much difference apart from not requiring the government’s nod now.” He believes that the government is not clear on the number of issues related to it. “For instance, many single-brand retailers today have multiple sub-brands. Does the new rule make it mandatory to open separate stores for each of them?” he asks. As per terminology, a single-brand retailer is expected to sell all its products under only one label across its stores.
Apart from this, one of the major issues faced by international brands is to meet the 30% target for local sourcing by their Indian units after five years of setting up. Many brands see it is a restriction as not many want or can afford to have 30% sourcing for the Indian market itself. “It should be clarified in detail to provide guidance to players in the retail market,” adds Talreja. But all is not lost, as the move will ease the investment process for foreign as well as Indian brands interested in being part of the Indian retail story.
For instance, the news turned out to be a blessing for German colour-cosmetic company Be Yourself, which entered India for the second time last year. It exited in 2012 after failing to make a dent in the market. This time, it has entered by partnering with Kaunis Marketing Services.
“With the liberalised FDI norms, BeYu will be able to expand the footprint with more products available in various towns,” highlights Ajay Ghooli, managing director, Kaunis Marketing while elaborating that with the hurdle of 30% mandatory sourcing getting relaxed for a period of five years, its business partners will be keen to explore more opportunities in various cities. “Consumers from tier II and tier III markets will have access to the brand,” he adds. As per the data compiled by Franchise India last year, more than 50 mid-rung brands will enter the country in the coming months.