IKEA's India entry: 10-month process raises hope

Sweden's H&M is already in queue, American casual wear brand Gap and Japan's Uniqlo are also waiting in the wings

International single brand chains, ranging from fashion clothing to home furniture to accessories, are expected to crowd the high streets, malls and even city outskirts across India soon. Industry experts attribute much of this movement to the government’s handling of the IKEA case. In just over 10 months, the Swedish furniture major got the approval to set up stores across India with a phased investment of Rs 10,500 crore.

While Sweden’s Hennes & Mauritz (H&M) is already in queue, having filed its Rs 700-crore proposal with the Foreign Investment Promotion Board (FIPB), others such as American casual wear brand Gap, Japan’s Uniqlo and Italian luxury major Prada are all exploring the option to set up fully-owned stores in India. Spanish retail group Inditex has also re-applied to FIPB for bringing its high-end brand Masimo Dutti to the country. Zara from the Inditex stable is already present in India, in tie-up with Tata group’s Trent.

Pinaki Ranjan Mishra, partner and national leader (retail and consumer products), at Ernst & Young India, agreed that IKEA has given the single brand space a boost. While it is a signal for other global brands to come, even Indian companies in this category would gain because of the funding and investment they may get.

Even some of the foreign brands that have been in India through joint venture partners and franchisee route may rejig their investments and go it alone in the country, a consultant pointed out. Among the prominent international players present in the India market through franchisee or joint venture route include Gucci, Versace, Armani, Zegna, Marks & Spencer and Zara.

Saloni Nangia, president (retail and consumer products), Technopak Advisors, a leading retail consultancy, viewed the IKEA clearance as a step that reinforces the confidence of international brands to come into India.

Since the government has already made some changes to its guidelines, especially related to sourcing, to suit IKEA, the going may now be easier for other big brands seeking to come to India, experts said.

When the government raised the foreign direct investment (FDI) level in single brand retail to 100 per cent from 51 per cent in January 2012, the policy mandated at least 30 per cent sourcing from the country’s small and medium industries. However, IKEA’s resistance to such a policy made the government tweak the norm to say that single brand foreign retailers must source 30 per cent from India, preferably from small and medium industries.

As Diljeet Titus of Titus & Co, the law firm representing IKEA in India, said, this is the first major approval that has tested the single brand retail space.

Yet another hurdle remains in sourcing. That is, the government may insist that any foreign retailer must source at least 30 per cent of what it sells here from India. And the mandatory 30 per cent sourcing from India cannot be used for exports, an idea that may not go well with  many global players’ thinking. The Cabinet Committee on Economic Affairs, which cleared the IKEA proposal yesterday, however, did not raise any concern on the sourcing matter, an official said.

Since January 2012, at least 15 proposals have come in. Among those who have applied -- some of which have already got the nod -- include UK-based footwear company Pavers, US fashion brand Fossil, US clothing company Brooks Brothers,  Italian jewellery company Damiani, French cookware manufacturer Le Creuset, Italy’s Officina Farmaceutica Italiana, Thailand’s Lotus Arts de Vivre, Decathlon Sports from France, and US-based Sealy.

The single brand market, estimated roughly at $7 billion (Rs 35,000 crore), could touch $25 billion (Rs 1.25 lakh crore) over the next five years, a recent study said.