 "H&M gears up for India as it reaches last hurdle")
As soon as H&M gets the approval of the Foreign Investment Promotion Board (FIPB), it will start opening stores in India, an industry source points out. If in the next one month, the company gets the government nod, the first store may come up as early as end of 2013 or at the start of 2014, he says.
This is quite in contrast to the other major Swedish brand, IKEA, which hit the headlines with the largest foreign investment proposal in retail at Rs 10,500 crore last year. IKEA wants to wait for the right location, right infrastructure and right price before taking a call on its first store. It seems now that the company has zeroed in on a plot of land at Noida, next to Delhi, where it may start its India journey. Construction of the IKEA store could take anything from 18 to 24 months.
The apparel company, whose creations are often seen on people like Kate Moss and David Beckham, is already believed to be in advanced stages of negotiation to book 25,000 square feet space at a top mall in New Delhi. Three years ago, Spanish rival Zara opened its flagship store, spread out across 16,000 square feet, at the same mall and it continues to do brisk business from there.
In fact, people close to the development indicate that H&M, which offers high-end fashion and catwalk look on a budget, is planning six stores in Delhi and its neighbourhood alone. Of course, it's going with a pan-India expansion strategy. While Håcan Andersson, press officer at H&M's Stockholm headquarters, says it is too early to say when and where the first stores would be opening, he adds that "India is an interesting market for H&M with many fashion conscious customers, and we look forward to open our first stores."
The brand, which operates 3,000 stores in 53 markets around the world, including the popular outlet at London's Regent Street, seems to be in a hurry to cater to the fashion-hungry young population of India. H&M wants to invest Rs 700 crore in India initially and may then scale it up. The company's April 18 application indicates that its investment could be much bigger than ^100 million. H&M has spent around $300 million in five years in many developing markets where it already has a presence and believes India has the same potential to attract investment.
Different strokes
Saloni Nangia, president, Technopak Advisors, a retail consultancy, argues that IKEA and H&M are both from Sweden, but they follow different formats. "IKEA is a destination shopping format with one or two stores in the city, which are larger. It will have complex sourcing processes. H&M, on the other hand, is a fast-fashion brand catering to a different target audience." A fast-fashion brand like H&M is expected to click in India with its large young population, according to Nangia.
Another analyst, who does not want to be named, says the format is such that it would do well. "Zara and Marks & Spencer are already here in India and it's a proven model."
However, the road to the lucrative India market has not exactly been a bed of roses for H&M. It filed its application with the department of industrial policy & promotion (DIPP) under the commerce and industry ministry in April and it was only recently forwarded to FIPB, a key wing in the finance ministry that vets foreign investment proposals. According to government officials, FIPB is likely to consider H&M's application soon.
There's something about Sweden. While IKEA's protracted negotiations with the government on India's retail policy is well chronicled, subsequently resulting in single-brand sourcing norms somewhat easing, mystery surrounds the hurdles faced by H&M. While it was clear that the chain's proposal had hit the regulatory wall, nobody explained why, till recently.
Five months after H&M filed its application to invest Rs 100 million (Rs 700 crore) in setting up single-brand retail stores in India, the government asked it about its commitment to comply with the mandatory 30 per cent sourcing norm.
According to single-brand FDI guidelines, in cases where foreign investment is more than 51 per cent, 30 per cent of the value of goods purchased must be from India, preferably from small and medium enterprises. The products so sourced would have to be used for single-brand retailing in India. But, DIPP sought clarity from H&M on whether it wants to source from India for retail operation in the country or for exports to other geographies also.
In its application, the company had confirmed compliance, saying: "H&M will source from India (preferably from micro, small and medium enterprises) the equivalent of 30 per cent of the value of the goods (excluding taxes and duties) purchased by H&M Retail India, the proposed investee company to be incorporated in India." It had added: "The goods sourced from India for the purposes of meeting the 30 per cent sourcing requirement will be utilised for export sales, as well as for domestic sales, through retail stores in India."
The latter part of the statement may have triggered doubts in the minds of the officials. Also, the FDI rules say that only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single-brand product retail trading in the country for the specific brand through a legally tenable agreement with the brand owner. H&M was told to clarify to the government on its licensing agreement. In this case, the applicant company (H&M Hennes & Mauritz GBC AB), as well as the second minority investor entity (H&M Hennes & Mauritz International AB) are 100 per cent subsidiaries of Hennes & Mauritz AB, the brand-owning entity. Hennes & Mauritz AB, through a licence agreement on April 11, 2013, had granted to H&M Hennes & Mauritz GBC AB, the applicant company, the exclusive right to undertake single-brand product retail trading in India, according to its application.
An official said recently, "H&M has clarified and there's no hurdle now."
At this point, the government does not want to create barriers for foreign investors, especially for single-brand chains which are not really a threat to the largely-unorganised, small retail stores. Politically too, single-brand retail is not such a hot potato, unlike multi-brand retail where majors such as Walmart and Carrefour have been waiting to enter but have not made any headway because of the tough policy riders on sourcing and investment, in spite of the Cabinet clearing FDI in the sector more than a year ago.
While H&M is coming to India with a clear strategy to target the fashion-conscious young population, it is sure to keep an eye on the likes of Zara which already operates in India through a tie-up with Trent. Around the world, Germany is H&M's topmost market, followed by the US, UK and France. Apart from H&M, the group has brands including COS, Monki, Weekday and Cheap Monday and Other Stories.
The Zara-H&M rivalry is well known in other parts of the globe. According to analysts, Zara has been scoring over H&M in many parts because of its aggressive e-commerce strategy and also its fast supply chain, low stocking, quick updating of designs and focused Asia expansion.
We will soon know how the rivalry plays out in the stores closer to home.