Online freedom may mean some more FDI flow into retail

The government’s move to allow international single-brand retailers to carry out online retailing will bring in more foreign direct investment (FDI) in the country, feel top retailers. But, experts indicate that the revised norms are likely to help foreign chains do business the way they do everywhere else in the world.

FDI in the single-brand retail sector till now is limited, with most brands bringing in minuscule investment for the country. The biggest investment has come from Swedish furniture maker Ikea at about Rs 10,500 crore. There is no consolidated figure for the total foreign investment in single-brand retail.

So far, the retail policy did not permit e-commerce by single-brand retail players, thereby affecting business plans of companies such as Ikea, H&M, Zara, Gap, Marks & Spencer, among others. Recently, an Ikea executive had told Business Standard that India is the only geography where the chain was not allowed to offer e-commerce.

With the latest change, not only will those present in India with their physical stores or those with plans to set up outlets benefit from online business, but others such as Japan’s Uniqlo, which have been exploring opportunities for long. In that sense, there’s scope for greater FDI if international groups, which have been avoiding India for lack of opportunity to do online business, decide to invest here.

On Tuesday, the Union government said any entity permitted to have single-brand stores in the country under FDI route can now undertake e-commerce activities. The change comes nearly four years after the policy. The United Progressive Alliance government had in early 2012 raised the FDI cap in single-brand retail from 51 per cent to 100 per cent.

“Any simplification will help attract more investments. I expect more people from abroad to set up stores in the country,” said Damodar Mall, chief executive, value retail, Reliance Retail.

A senior executive from Tata-owned Trent said clarity in rules will help international retailers. “Despite the fact that most of the global brands such as H&M, Zara and Gap are already there, those on the sidelines may come. It will definitely lead to more investments,” the executive said. Trent runs a joint venture with Zara in the country.



Rakesh Biyani, deputy managing director at Future Retail, felt the government should do away with the definition of single-brand retail and multi-brand retail, which exists nowhere in the country. “Nowhere in the country do we have a definition of single and multi-brand retail. Retailing is divided on the basis of products and categories. This definition is keeping away money that would have otherwise come into the country,” said Biyani.

He said the government’s move to allow single-brand retailers to operate online portals is nothing but ease of doing business. “Bringing clarity and simplicity will help both existing and new players,” he said.



However, Pankaj Gupta, senior practice head-consumer and retail at Tata Strategic Management Group said investments will come with a lag effect. “First, companies will have to firm up plans and then bring investments. They have to take a decision about whether to set up their own exclusive platform or go on others’ platform.” In fact, UK’s Marks and Spencer, which operates single-brand stores in India in a joint venture with Reliance Industries, had recently announced joining the Flipkart platform to sell its products online.

While the sector awaits the finer print on the changed policy, Arvind Singhal, founder, Technopak had told Business Standard on Tuesday that the move to allow online business by single-brand players should not be linked to any possibility of greater FDI. It is more about helping companies operate their business in the international format, he said.
SINGLE-BRAND LANDSCAPE

• Swedish furniture maker Ikea’s fully-owned first India store to come up in Telangana by mid-2017
• Swedish fashion chain H&M, with 100% FDI, has opened two stores in the country
• Spain’s Zara operates 17 stores in the country, in JV with Tata Trent
• UK’s Marks & Spencer, in JV with RIL, opened its 50th store in the country recently
• US retailer Gap opened its first India store last month in a pact with Arvind Group