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Decathlon sets off with 100% FDI in sports retail

Nilofer D’Souza, Forbes India
April 2, 2013

In what could put the government’s controversial new foreign investment policy in retail to an impact test, French group Auchan has announced its first retail store, Decathlon, in Bangalore. It is the first big-format niche retail chain to open in an increasingly fitness-conscious urban India that craves for sporting space and quality equipment.
The Euro 43 billion French group’s venture is one of the early bird licences under a new investment policy which allows 100 per cent foreign funding of single-brand retail stores. Though the government had cleared the policy in November, some niggling issues regarding local sourcing had remained and it was finally notified in January. Auchan’s proposal to invest Rs 700 crore went through on February 13, the same day that the FIPB also cleared single-brand retail plans of Promod SAS, Le Creuset and Fossil.

Most of Decathlon’s stores now sport an ‘open to all’ sign to indicate the change in its policy. It states the change on its Facebook page too. In a comment to customers, Decathlon Mumbai, says, “FDI in retail did not allow foreign retailers to sell to individuals directly. We were respecting the law of the land by being a wholesaler.”

Decathlon does not have a clear competitor as the sports goods retail market in India is populated with small over-the-counter stores or a few hundred square feet space in department stores. It has been present in the wholesale market with a cash-and-carry model for the past three years. This would be the first test of big-format retail’s impact on small merchants in a niche segment.

Decathlon stores are big—sprawling over at least 4000 square feet. In comparison, sports goods shops in the country are tiny. Even in malls or supermarkets, sports goods get only a corner, about half the area of a typical Decathalon store. It uses the extra space for indoor sporting facilities.

“It could turn out to be a category killer, and create and define the category because of the experience and product mix it has,” says Devangshu Dutta, chief executive, Third Eyesight, a retail consultancy, “Even with wholesale operation in Bangalore, they have done fairly well. They broke even fairly quickly,” he says.

The company opened a store in Mumbai last week and plans to open in Hyderabad and Chandigarh too. About 3000 customers thronged the store on the first day. That is a big draw for a niche segment currently valued at Rs 2,500 crore but estimated to grow to $6 billion by 2025 in India.

In cities, people are starved for entertainment beyond movies, restaurants and malls. Decathlon has potential to provide weekend entertainment alternatives. That fits with its own target audience – the family.

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