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Liz \n Morrell, Retail Week<\/i><\/p>\n Liz \n Morrell, Retail Week<\/i><\/p>\n
February \n 26, 2013<\/i><\/p>\n
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India \n has long been an attractive target for international expansion \n thanks to its size and a young, increasingly affluent population.
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Retailers have been extolling its merits for some time, but it’s \n a market where UK retailers have been hampered by everything from \n regulatory restrictions to cultural challenges.
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India closed off foreign direct investment (FDI) into retail \n operations in the second half of the 1990s, and although it began \n reopening the sector to FDI in 2006, it has taken until this year \n for the country to announce changes that may finally make a difference \n to UK retailers.
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In November last year, the Indian cabinet passed a bill to allow, \n for the first time, the opportunity for single brand retailers \n to enter the market alone rather than with a partner.<\/p>\n
While retailers that sell more than one brand – such as Tesco \n – cannot own more than 51% of their Indian operations, single \n brand outfits such as luxury fashion retailer Mulberry – which \n already has a presence in the country – could now own 100% of \n its business.
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Political considerations<\/b>
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Within weeks, however, the bill was on hold after several political \n parties opposed the decision. Planet Retail retail analyst Manu \n Ghai says that politicians are trying to protect traditional retailers \n in the country.
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PricewaterhouseCoopers chief retail adviser Christine Cross agrees, \n saying: "There is a paranoia in the local market." Many \n smaller Indian retailers are worried about being put out of business \n by their Western counterparts. The Indian government has been \n nothing if not indecisive on the issue. In January, it reverted \n to its November decision, meaning single brand retailers are now \n able to enter the market by themselves. "The recent announcements \n have led to an expectation that a lot of the luxury brands will \n announce their entry or accelerate their growth plans for India," \n says PricewaterhouseCoopers director of corporate finance mergers \n and acquisitions Alex Priestley.
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Luxury houses that have been reluctant to partner with domestic \n players in the past now have more options, and brands already \n in India through joint ventures or partnerships may look to gain \n more control over their operations.
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A number of retailers are already in the Indian market by virtue \n of working with franchise partners. But the policy change is likely \n to prompt brands such as Ikea – the largest single brand retailer \n in the world – to accelerate plans. "As of now, India is \n a very interesting potential retail market for the Ikea Group," \n says an Ikea spokeswoman. "We are currently evaluating the \n requirements of the FDI decision and hope to be able to present \n more information shortly about our possibilities to establish \n retail operations in the country once the conditions are right."
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Partners preferred<\/b>
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But other experts believe retailers will still prefer to use \n partners. "From the retailers we speak and work with, the \n majority will probably still think about doing it with a partner \n because it’s not just the regulations – it’s about life on the \n ground too," says Julie Carlyle, head of the UK retail team \n at Ernst & Young.
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And that provides its own challenges – good partners are hard \n to find. "There aren’t that many of them and they are being \n wooed," says Ernst & Young head of fraud investigation \n and dispute services group John Smart.
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A decision on multibrand FDI, which would open up the market \n to yet more retailers, is likely to be another couple of years \n at least. This is further holding up the expansion plans of retailers \n such as Tesco which currently operates 15 Star Bazaar hypermarket \n stores under a franchise agreement with Trent – part of the Tata \n Group conglomerate – but had talked of about 50 at its launch \n in 2008.
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Walmart, Carrefour and Metro have all also made in-roads into \n India, setting up wholesale operations, dedicated supply bases \n and other back-office functions, according to Priestley. But most \n of this activity so far is in preparation for future growth. "While \n of some benefit to their global operations, this is likely to \n be all in readiness for when or if the multibrand retail environment \n is opened up," he says.
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But FDI restrictions aren’t the only challenges retailers face. \n Understanding the regulatory framework, including tax laws, is \n essential and by no means easy.
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Many retailers also underestimate the bureaucracy involved, with \n regional as well as central authority permissions required for \n simple processes such as opening stores.
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There can also be a tendency to simply underestimate the challenges \n the sheer size of the country brings, which is reflected most \n acutely in a poor supply chain infrastructure. "The distribution \n infrastructure is pretty torturous – especially for chilled and \n frozen food which further north is practically non-existent," \n says Cross.
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There is also an increased risk of shrinkage according to Smart. \n "There are always shrinkage risks in the supply chain, but \n there are slightly more risks around intellectual property protection \n in India because there are lots of small outlets where your product \n can be diverted to," he says.
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The scale of the country also brings the challenge of different \n tastes, which vary widely across India. "Its continental \n scale, as well as the mix of languages and cultures, makes it \n as complex as the EU, or even more so," says Devangshu Dutta, \n chief executive of Third Eyesight, which has helped a number of \n UK brands enter the market. "Retailers that have been prepared \n for this reality have done better in the country than those that \n have taken a cookie-cutter approach," he says.
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In contrast, those that performed the worst tried to impose their \n global standards for everything onto the Indian business.
\n Insurmountable difficulties?
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There is a concern that retailers could grow bored of the difficulties \n of the market and turn their attentions and investment elsewhere \n – something Ikea has previously hinted at – but Ghai says that \n would be a foolish move. "It’s a vast, growing market with \n a high spend. It’s going to take another couple of years to get \n to where developed countries were in the 1970s or 1980s, but it’s \n growing quickly and retailers really can’t ignore it," she \n says.
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Dutta says India’s track record speaks for itself. A few retailers \n may have exited the market over the past two decades, but they \n are a tiny fraction of the number that have entered.
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"If a retailer approaches India as a market with low-hanging \n fruits, they will be disappointed. India needs to be approached \n with a long-term view on sales and investment," Dutta says.
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India’s size alone makes it worth the effort – it may not be \n an easy market to break into, but for those that manage it, there \n are some big prizes to be won.<\/p>\n
UK RETAILERS IN INDIA<\/b>
\n – Marks & Spencer has 25 stores with its partner Reliance \n Retail, opening around a store a month
\n – Mothercare boasts 74 stores in 17 cities, around half of which \n are franchise and half with its joint venture partner DLF brands. \n Has plans for 200 stores by 2015.
\n – Next has a wholly owned call centre in India and began trading \n online last year
\n – Debenhams has a franchise store in Delhi and has pledged further \n expansion
\n – French Connection Has more than 25 stores through its licensee \n Brand Marketing India. More are planned
\n – Hamleys has stores in Mumbai and Chennai
\n – Accessorize has nearly 20 stores in India including six in Mumbai
\n – Austin Reed Is present in 17 Shoppers Stop stores.
\n – Clarks Has opened its first exclusive store in India in New \n Delhi last April, having first entered the market in 2005
\n <\/p>\n","protected":false},"excerpt":{"rendered":"
Liz Morrell, Retail Week February 26, 2013 India has long been an attractive target for international expansion thanks to its size and a young, increasingly affluent population. Retailers have been extolling its merits for some time, but it’s a market where UK retailers have been hampered by everything from regulatory restrictions to cultural challenges. India […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-3245","post","type-post","status-publish","format-standard","hentry","category-press-quotes"],"yoast_head":"\n