Home-grown brands look to learn from big boy retailers

Bindu D Menon Updated - December 06, 2012 at 08:53 PM.

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Forget being hit by competition, domestic retailers say the entry of global players to operate supermarket chains will benefit consumers, as they will have a wider choice at best prices.

Most retailers say the highly capital and labour-intensive retail business will receive not just fund-infusion in areas such as cold storage and logistics, but also advanced technology to carry out operations. Domestic retailers say they are on track with their capex to take competition by the horn.

Last evening, the Government crossed a major hurdle in the implementation of FDI in retail with the Manmohan Singh-led Government winning the vote in Lok Sabha. The highly contentious issue saw a total of 471 votes being cast with 253 members of Parliaments voting against the BJP motion seeking withdrawal of the FDI policy, and 218 voting for it.

The Bahujan Samaj Party and the Samajwadi Party, which provide external support to the Manmohan Singh Government, helped it defeat the BJP motion by walking out before the vote. The debate has now entered the Upper House where the Government is in a minority.

A game-changer

However, India’s biggest home-grown brands hailed the move saying it would be a game-changer.

Kishore Biyani, CMD, Future Group, said FDI would lead to an increase in consumption in a growing economy, while the RP-SG Group’s Sanjiv Goenka said the strong message from the Government to carry forward the agenda of reforms, would be a huge step for the sector. The Group owns Spencer Retail.

Most retailers agreed that food and grocery, apparels and footwear categories, would benefit the most.

They said domestic brands may see fund infusion as also an opportunity to be vendors to big brands.

Harkirat Singh, MD of Woodland Shoes, said, “Retail in India is only few years old compared with many developed markets. We lack adequate technology and infrastructure to help it develop. Big brands will bring that expertise. Domestic retailers like us have opportunity to become their global vendors.”

Ramchandra Agarwal, erstwhile promoter of Vishal Retail and CMD V2, noted that, “Political structures demonstrate the direction of Governments policies. The clear direction in the House on FDI in retail will send a strong message to global investors that policy paralysis is over. However, international players may still adopt a wait-and-watch policy to understand the States’ role. For us, we will be expanding in tier 1 and 2 cities.”

But international brands may take a while before taking a plunge. Paresh Parekh, tax partner - retail & consumer products, Ernst & Young, said, “It is likely to take 12-14 months for multi-brand international retailers to actually open hyper markets/shops. The Government’s prior approval will be required for each case, then followed by land/store acquisition, supply chain development, . Further, some retailers may find few conditions like minimum $100 million investment, 30 per cent sourcing from small industries a bit cumbersome to satisfy.”

Land and rental

Most retailers agreed that land and rental may be a problem. Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, noted, “Within the next 12-24 months, international retailers will accelerate their entry strategy. As a result, developers involved in shopping centre development, will also get a tremendous boost and we will witness serious players expanding in this space.”

> bindu.menon@thehindu.co.in

Published on December 6, 2012 15:23