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Monday, 09 Jul 2012
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Policy change will open up investment opportunities global retailers


Retail sector in India - an overview


Global Retailers_High Street Phoenix  

The Retail Industry in India has undergone a transformation. It has transitioned from traditional stores to exclusive showrooms in the past few years. The Indian Retail Industry, which is the fifth largest in the world, is a remarkable mix of organised and unorganised players today. However, it took many decades for modern retail to strengthen its roots in India. The shift in consumer preferences and tastes, especially in the past few years, is increasingly opening up opportunities for modern retail in the country. Indian consumers are gradually adopting the trend of visiting malls and are more willing to spend on brands now than ever before. In line with the demand, several major conglomerates have forayed into the sector and have set ambitious plans to capture market share and expand their reach. In the years to come, India is expected to witness a significant demographic transition, with a large percentage of population included in the working class. Such huge numbers imply better profits and larger penetration for the organised retail players.


Rajendra Kalkar_Street PhoenixRajendra Kalkar is a professional with more than 22 years of experience spread over Sales, Marketing, Exports, Retail and Retail Real Estate. He is a well travelled seasoned professional with a varied business experience. An engineer by background with a PGD in Management, he is currently the Sr. Centre Director at The Phoenix Mills Ltd. and is responsible for Operations, Leasing, Retailer Mix, Legal, Customer Relationship and Marketing, including the Top-line and Bottom-line and the commercial success of High Street Phoenix, Mumbai. He also oversees the recently launched Phoenix Market City in Pune. His past experience in Retail Real Estate includes mall management at DLF, Gurgaon and Kshitij CapitaLand, Gujarat region.

In a bid to cash in on the buyers' urge to spend, most brands are investing resources in developing strong retail infrastructure that can attract more consumers. As a result, there has been a considerable increase in the number of malls, multi-brand outlets, hypermarkets, supermarkets, discount stores, etc. in the past few years.


While the expected increase in per capita income of Indian consumers is likely to accelerate the pace of growth in this sector, a few hurdles like higher cost of real estate might impede its pace. If these issues are addressed, it will not take long for Indian retail segment to become the largest in the world.


FDI and Retail Sector


FDI in Retail sector is not allowed, it is only allowed up to 51 per cent in single brand and the government is still considering the opinion of allowing FDI in multi brand segment. Up to 100 per cent FDI is allowed in cash and carry wholesale and export trading.


FDI in retail sector will have both positive and negative effect if allowed. Both organised and unorganised sector will face adverse competition from global players. Talking about the organised sector, which consists of big Indian players who have entered in Retail sector just to take advantage of diversification and expand their business, they will also be affected but from different prospects. Traditionally, the Retail industry is known to be one of the largest employment generators in the world. For a country like India this is the biggest advantage.


Apart from this, the policy change by the government will open up strategic investment opportunities for global retailers. This will have a significant positive impact on all the stakeholders and will provide a necessary fillip to the growth of the Indian economy on the whole. With more and more private labels launching the already existing brands/products in the Indian market are facing tough competition. The new FDI policy will allow several giant global corporations to set up shops in India in association with domestic partners. Consumers will now get to experience a new wave of consumerism.


In case, the decision on FDI comes through, how will it change the unorganised Retail sector in India?


The Central Government allowing 100 per cent FDI in multibrand retail remains a high possibility in 2012. However, due to the associated beliefs of negative effects to unorganised retail, it will be hard to have the proposition accepted unanimously, and we expect certain conditions being imposed for the same. If 100 per cent FDI in multi-brand retail is allowed, the sector might see a significant growth in supply of quality retail space. Besides, the sector is expecting to grow steadily with the increasing demographic and growing consumerism in the country.


Challenges for multi-brand Retail sector in India Major challenges that lie ahead are:


  • Economies of scale: the global players have economies of scale and are perfect in cost cutting and providing the consumer the best at lowest price which still is a major challenge for Indian retail firms.


  • Brand name: They bring with them world class products which have high quality and a highly valued brand name. The domestic brands don't have that charm and attracting power as of global brands.
  • Technology: Global players are highly advanced in technology. The tools, equipments, kind of warehouses they use, their way of performing processes are highly advanced and cannot be compared with those used by Indian retail firms, which in turn provides better services and better quality products even in categories like perishable food etc.
  • Attract skilled employees: The work culture of global players is quite different from those of Indian players. They believe in earning profits by cutting costs as much as possible and at the same time are conscious towards career of their employees. Their approach is more oriented towards achieving ends rather than means. Attractive salary and high incentives can also attract skilled employees towards global players which is also a threat for big Indian retail firms.
  • Better infrastructure: Better storage facilities, better transportation medium and high investment can pose another threat to Indian retail firms which can hardly match the capabilities of giants on their own.
  • Joint ventures: Global players may not prefer to enter into JVs with Indian firms and may also close down the existing ventures in wholesale and single brand which may adversely affect the Indian firms. This is possible when 100 per cent FDI is allowed in multi-brand retail.


Future strategy once the global multi brand retailers set shop in India


In light of the above, it can be safely concluded that allowing healthy FDI in the Retail sector would not only lead to a substantial surge in the country's GDP and overall economic development, but would inter alia also help in integrating the Indian retail market with that of the global retail market in addition to providing not just employment but a better paying employment, which the unorganised sector (kirana and other small time retailing shops) have undoubtedly failed to provide to the masses employed in them.


Plans for tier II and tier III cities


Today, The Phoenix Mills Ltd., has five mammoth mixedused developments comprising of very large malls, hotels, multiplexes, food courts and commercial/ residential developments in Bangalore, Chennai, Pune, Mumbai (BKC, Mumbai) along with its pioneering project High Street Phoenix that changes the faced of Lower Parel in Mumbai. Further, the Group is also building pan India shopping centres in tier II and tier III cities through its various investee entities. Simply put, the roll out is amongst the largest current retail roll out globally in terms of square footage.


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