Global single brands bet on India growth story

Global brands are looking to India for boosting their growth as more and more of them are looking for ways to enter this market. Taking advantage of the government’s decision to allow 100 percent FDI in single-brand retail, scores of brands have

queued up with their proposals. So far proposals worth about Rs 855 crores have already been cleared by the government for single-brand retail ventures. These include Decathalon, Pavers, Fossil and Promod.

The government announced its policy on foreign direct investment (FDI) in single- and multi-brand retail last September. It eased norms for the mono-brand FDI and allowed up to 51 percent FDI in multi-brand retail, leaving the decision of allowing the foreign retailers to respective state governments. Meanwhile 10 states, including Maharashtra, Delhi and Haryana, have allowed overseas retailers to open stores. However, the rest of the states are yet to approve the policy.

The number, according to industry experts, is significant in relation to the Rs 196 crores FDI that came in between April 2000 and January 2013 for single-brand retail ventures. That amounted to 0.02 percent of overall FDI in India, as per a Department of Industrial Policy and Promotion (DIPP) fact sheet submitted to the Reserve Bank of India. Some of this FDI, including the Rs 98.26 crores proposal of Pavers England (cleared in November 2012), is part of the Rs 855 crores that has come in as FDI in the seven months since the policy change.

While Rs 855 crores includes clearance given to wholesaler retailer Decathlon Sports India’s investment proposal of Rs 700 crores for single-brand retail trading; Swedish home and lifestyle retailer Ingka Holding Overseas BV, which operates Ikea has got the nod to invest Rs 10,500 crores under single-brand retail recently.

These brands’ keenness to enter India’s retail space is largely because of the ongoing uncertainty in Europe and other countries such as Japan, where growth is stagnant. The brands are either showing interest in making a solo entry or through joint-venture partnerships. Preference is being given to joint-ventures or licensee agreements since local partners have better understanding of the market. For instance, Fast Retailing, which runs Uniqlo, is looking at entering India through a domestic partner. Zara, which entered the country through Tata’s Trent has also witnessed positive growth in the Indian market.

Meanwhile, the government has also eased its 30 percent mandatory sourcing norm by saying that such sourcing was preferable but not mandatory. And even though retailing in India is considered a risky business due to high rentals, limited prime locations, value conscious consumers and regulatory and tax rules, global brands seem to look at India as a long-term growth market.