Unclear policies forces global chains to hold India plans

Whether under multi-brand or single brand retail, foreign majors like H&M and Ikea, keen to explore the lucrative India market, are putting their plans on hold. Reason: ambiguity over foreign investment policy almost two years after the retail sector was opened to FDI. The second reason is lack

of good retail spaces.

While multi-brand retail policy has not found any takers, except Tesco, who is pursuing plans through a joint venture partnership with Trent. While Walmart decided to open wholesale stores after breaking ties with Bharti Retail, French retailers Auchan Group and Carrefour have pulled the curtain over their India plans. This is

because the regulatory framework for super markets remains uncertain. Also the BJP-led government has expressed its clear opposition to multi-brand FDI policy, whereas the earlier UPA government had left the decision of allowing foreign multi-brand retailers open store in a particular state to state governments.

Dilemma over FDI policy

While the commerce minister Nirmala Sitharaman has clarified Narendra Modi-led NDA government’s stand on the FDI policy saying it would not allow FDI in multi-brand retail, it has not yet notified a withdrawal of the previous government’s policy, which allowed foreign investment in the sector. The minister also announced that the same ban applies to e-commerce firms, too.

But even under single-brand retail, where up to 100 percent foreign investment is allowed, very few have shown interest, contributing just Rs 300 crores in the last two years. Most foreign labels are either entering with domestic partners, like GAP or The Children’s Place have done by inking partnership with Arvind or through ecommerce platforms like Myntra or Jabong. They prefer relying upon the local partner’s understanding of the consumer tastes and preferences.

On August 1, the government had said there were no plans to modify sourcing norms linked to FDI in single-brand retail in the near future. This is another reason why global luxury labels are not keen on entering the Indian market. They feel, by sourcing from Indian companies, they would not be able to maintain the uniformity of their product.

Lack of quality spaces, a hurdle

Another hurdle, these international retailers are facing is lack of quality spaces or high streets along with steep rentals. There is approximately 54 million square feet of retail space in India across metros and their suburbs. Despite the steady growth in supply of organized retail space over the past 10 years, retailers of the size of Ikea often find it challenging to secure space in a prime mall in any of these cities, said a September 4 report by CBRE South Asia.

Among India’s 300-plus malls, only a few can are successful retail projects, said the CBRE report, naming Select CityWalk, DLF Emporio and DLF Promenade in South Delhi, Ambience Mall in Gurgaon, Inorbit and High Street Phoenix in Mumbai, and Forum in Bangalore as the successful ones. The report said the total space available at these successful malls is just 4-5 million square foot.

India lacks hi-street destinations like New York's Fifth Avenue and Madison Avenue or London’s Bond Street, so they have to go an extra mile to look for a retail place that would attract enough eye-balls. The reason behind foreign labels entering through e-commerce is cited as less number of high-end malls and low sales potential coupled with limited space at five-star hotels.

In fiscal year 2014, the Rs 2.4 trillion organized retail industry recorded its lowest growth rate in a decade at 12 percent over fiscal 2013, which is still better than the growth seen in some of the advanced markets. No wonder, despite all the roadblocks, brands are still keen on making a foray into the Indian market. Japanese brand Uniqlo’s recent move is an indication this trend.