The
recent Government of India notification allowing 51% FDI in multi brand retail
is hailed by the retail industry as a welcome move that will spur the growth of
modern retailing in India. For quite a few years now, the pros and cons of FDI
in Retail in India have been deliberated upon and with much thought the entire
business is now classified largely (and wisely too) into Single Brand and Multi
Brand retailing and different norms are being applied so that all the
stakeholders are benefitted in the long run. It is worthy of note that no other
country in the world treats retail with such classifications, though we have
come across instances of conditions attached to the FDI policy.
In
the case of multi brand retailing, the condition of a minimum investment of USD
100 million and 50% of which ought to be made in the development of back-end
infrastructure within a span of five years shows the Indian FDI policy’s long
term commitment towards building a robust back-end infrastructure facilities
for the future, like warehousing, sourcing and supply chain. The other
conditions of minimum sourcing and investor status remain for multi brand
retailing and these can be complied with easily in large multi-category and
multi-brand retailing. The multi brand store organizations with FDI can open
stores only in cities with a minimum of 1 million population and this is
expected to insulate domestic retailers in small towns from the competitive
onslaught of foreign retailers. Going ahead, Indian retailing will see many
joint ventures and mergers in multi-brand retailing. The hitherto present ‘cash
and carry’ retailers will be able to easily extend their formats to set up
their retail stores leveraging their existing fruitful joint ventures and
partnerships or forging new alliances.
The
easing of the sourcing conditions attached to single brand retailing will
further augment the entry of many single brands into the Indian retailing
shores. Doing away with the condition that the foreign investor has to be a
brand owner will motivate many single non-resident investors irrespective of
their brand ownership status, to invest in India through a legally tenable
agreement with the respective brand owners. This change in the policy will be a
major enabler of single brand entry into India in future. However the
notification says that single brand retailers with FDI shall not engage
themselves in retailing in any form by means of e-commerce and this is good news for many of our venture capitalists!
The
major concern centers on the fact that the decision to allow FDI in multi brand
retailing is left with the respective state governments. Questions have already
arisen on what would happen if governments changed and consequently the reversal
of the decisions of earlier governments were to be considered! The government
of Maharashtra has progressively come forward to welcome foreign retailers in
the sector. One must note that for many large retailers, as much as 30% of
revenues come from the state of Maharashtra, especially from the cities of
Mumbai and Pune. Mumbai being the commercial capital of India will be the
frontrunner not only showcasing the next evolutionary phase of modern retailing
to the rest of the country but also spurring a big economic boom. The states
that are vehemently opposing the FDI proposal are progressive too in seeking to
achieve economic growth and we hope that they will not be far behind in
allowing foreign investments in the retail sector in their states. And consumer
pressure too will begin to heap in the near future.
- Dr. Gibson G. Vedamani
In many of the organised retails we get to see that they have a few billing counters and the queue for billing is usually a long one . This is primarily due to lack of space for billing / exit .
ReplyDeleteWith the FDI coming in these stores are going to expand rapidly in terms of size . The rental of the commercial property is going to hit the sky . Is this going to have a direct effect on the real estate which is already on a high ?
Eric, your fear is valid. But, I don't see rentals being impacted much, as many of the new large format stores may come up in destination locations spread over larger land areas and not in high streets and malls. Extension of retail locations in cities and towns may happen with wider locational gravity. I expect the average size of supermarkets and hypermarkets may go up in future in these destination formats and this will give adequate room for accommodating many more cash tills (to follow the norm of having not more than three customers in a queue at any busy point in time). As regards brand stores, many more may come into the fray increasing the demand for well located, well planned and well managed malls and these will continue to be in great demand. That said, while will put pressure on our mall developers to come up with only best-in-class properties, rentals may go up in deserving malls alone, as you have opined.
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