On a macro level, the bill allowing 51% FDI in Multi-brand retailing will help in the growth and development of the country and the economy on the whole will gain momentum, depth and size. Though, many contend that the foreign retailers will watch only their own interest, it cannot be denied that for their smooth running these retail giants will also invest in infrastructure. According to experts, the FDI in retail has the potential to create 3 million jobs in three years including both direct and indirect jobs. In the next 10 years’ time the figure could touch as much as 10 million, wherein 4 million would be direct jobs and around 5-6 million indirect jobs including contractual employees. For an economy, which is fast growing and emerging as an important market for the world, these figures cannot be ignored.
As the year comes to a close, the industry was happy to see the Government winning vote on Multi Brand Retail in Parliament, which many consider will be harbinger of new economic reforms in the country. Ever since the Government pushed the bill for 51% FDI in multi-brand retail in September this year the garment industry has come forward in support seeing many opportunities for growth. With the bill finally getting through both Houses of Parliament, the year 2013 may see a major movement in the retail landscape, as many of the big multi-brand retailers including Walmart, Carrefour, Tesco and Ikea are waiting in the wing to make an entry. While other industries have reservations, the clothing industry is very upbeat…
Dr A. Sakhthivel has termed the FDI in retail as a huge opportunity. “It will give the much needed fillip to the entire Textiles Industry, create plenty of employment opportunities, increase the manufacturing activity and raise the demand of cotton products and yarn and will also help the domestic demand. Along with this the availability of capital flow will improve, better infrastructure would be created at back- and front-end of the business value chain and even consumers will derive value for their money,” he says.
According to M Rafeeque Ahmed, President, FIEO, the investment through FDI route will provide stability to Indian rupee as well, which is witnessing high volatility in the current year. “This will also help in managing the current account deficit which is becoming unmanageable,” says Ahmed. Industry watchers are confident that Textile, Leather, Gems & Jewellery, Handicraft, Carpets and other lifestyle products will be immensely benefited from the FDI. Multi-brand Retail will also indirectly help the export sector as exporting units will get exposed to new trends emerging on the globe and shall be accessing large departmental stores for exports of quality products from the country.
Retail experts are of the opinion that the first to make an entry with the passing of the bill are the fashion retailers as they are among the most global and their retail formats are the most translatable across countries. The other aspect that favours the entry of more fashion retailers is the fact that there are already so many international brands operating in the market, working at their own level to change and uplift the retail ecosystem. The number of international fashion brands in the country has grown 4-times in the last 6-7 years, and the pace does not look like it is slowing down now. Some of the new brands may now take the opportunity to setup majority joint-ventures or 100% owned businesses here, instead of going through a franchisee or licensee.
Specifically in the luxury sector, 51% FDI and distribution relationships will continue to be in the majority, since it is virtually impossible for most luxury companies to meet the 30% domestic sourcing requirement in its true spirit. In many cases, the local partner in a JV is a mere place holder until FDI rules are liberalized further and, unless the business grows significantly, most brands will be content to keep the existing structures in place. However for many of the brands meeting the 30% domestic sourcing requirement is relatively a modest task. Retailers such as Gap and H&M already have significant sourcing operations in India, and they would be able to use these to build the requisite local sourcing. Others such as S.Oliver have a smaller sourcing presence but can also scale that up when they wish to take their holding up to 100%. This is where the opportunity for exporters with their experience of servicing international retailers will come in handy.
Multi-brand Retail will also indirectly help the export sector as exporting units will get exposed to new trends emerging on the globe and shall be accessing large departmental stores for exports of quality products from the country.
The fashion universe is vast, and retail watchers expect many more international womenswear and childrenswear retailers to take particular note of the growing demand in India. Home improvement retailers Ikea, Home Depot, B&Q and Groupe Adeo have expressed their interest at various points of time. With Ikea clearly staking a claim on the market, it is likely that the others will also be encouraged to step up their involvement in India. However, many of these will be hampered by the requirement to source 30% of their needs from Indian SMEs since they sell multiple brands of products, not just their own private label. A single-brand approach may be the preferred point of entry, although it may entail the risk of a diluted, insufficient product offer for some.
Among multi-brand retailers, including convenience stores, supermarkets and hypermarkets, those retailers that are already engaged with the market will step up their presence. Most of them are prepared to invest the required minimum amount (US $ 100 million), although investing half of that in “back-end” operations may take some bold thinking. However, taking up an equity stake in their existing partners’ businesses is still a task that will take a few months at the very least, because operations would need to be restructured to comply with the State-level FDI approvals for multi-brand retailers.