admin
January 12, 2012
Vrinda
Oberai
RETAILER,
New Delhi, January 12, 2012
The
Manmohan Singh government has finally given its nod for the relaxation
on the existing 51 per cent FDI in single brand retail, increasing
it to a much awaited 100 per cent.
The move has paved way for single brand foreign retailers’
to own 100 per cent of their operations in the country, possessing
fully-owned stores here. However, the decision comes accompanied
with a rider that 30 per cent of the value of products sold would
have to be mandatorily sourced from small Indian industries/village
and cottage industries, artisans and craftsmen, (collectively
referred to as ‘suppliers’).
The new policy is advantageous for international players like
Gap, Starbucks, Adidas, Nike, etc, as it allows them to buy out
domestic partners and fully own Indian operations. Also, according
to sources, it is learnt that foreign brands still prefer the
JV mode or franchise model of doing business in the country. The
reasons for the same can be many, the immediate ones being a nascent
luxury market, shooting real estate costs and also, most importantly,
the knowledge possessed by a local partner.
The new norm is no big game changer for some and this is further
confirmed by the comment that we received from Marks and Spencer.
"India is an extremely important market for Marks & Spencer.
Our journey in India has been exciting so far and our Joint Venture
partner, Reliance Retail, has helped us transform our position
in this dynamic market. We have been able to open larger stores
and realign prices to serve our customers better in India. We
have also benefited from working with a partner, which has significant
local experience and expertise in managing logistics. We are very
happy with our current relationship with Reliance Retail and don’t
plan to do anything differently following the recent announcements
on FDI,” commented Martin Jones, CEO, Marks and Spencer Reliance
India.
Harish Bijoor, Brand Expert and CEO, Harish Bijoor Consults Inc,
opined, “I do believe this is a positive early signal of
what is due in multi brand retail. In many ways, this is the trailer
of the movie to come, hopefully post the assembly elections. This
will excite single brand retailers. I hope this sends the right
message to the right retailers.”
The shares of retail firms like Pantaloons Retail, Koutons, Provogue
India and Shoppers Stop rallied sharply, following the Cabinet’s
FDI announcement. A positive expectation from the decision is
that a bolder initiative shall soon follow for FDI in multi-brand
retail, too. “I think this is a step in the right direction,
more so as this gives an extremely positive intent as far as the
government and reforms are concerned. This will now have a snowballing
effect, going forward in other sectors crying for reforms like
aviation,” said Sugato Bose, Brand Head, Pure Home+Living.
Bose added, “As far as Indian brands are concerned, I do
not immediately see any major shakeout of any kind in the immediate
future. This will only make sense if any Indian brand is looking
to sell out. On the other hand, we will definitely see renewed
interest in a lot of international mainstream as well as fringe
brands to enter the Indian market now.”
FICCI also gave its ‘happy’ reaction to the decision
of the Cabinet. “The move will not only mean more FDI but
also lead to employment and more choices for consumers. Global
retailers are bound to bring in global best practices and technology
that will lead to a more competitive marketplace benefiting the
consumers. The sourcing clause will lead to a direct benefit for
the SME sector,” said Dr Rajiv Kumar, Secretary General,
FICCI.
Devangshu Dutta, Chief Executive, Third Eyesight, also shared
his view point and said the government can benefit, in terms of
indirect and direct tax collection, from these more structured,
“on-the-books” businesses. “We cannot run 21st
century supply chains on dirt roads, with unpowered storage and
a poorly educated workforce. The benefits of FDI in retail will
remain largely unrealised for the overall nation if there is no
simultaneous investment by the government in three key areas –
transport infrastructure, electricity and education. The Indian
government must be a ‘co-investor’ and active partner
in developing and maintaining these aspects much more aggressively,”
wrote Dutta in one of his recent blogs. (Click here to read it:
"FDI
in Retail: More Heat than Light")
(This article was published in the magazine "Retailer".)
