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Indian retail market opened more doors for NRIs

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The recent wave of reforms by the Government to incentivise foreign direct investment (FDI) in various sectors is bringing a new zeal to the investment options in India. One of the most debated reforms is the policy for allowing 51 per cent FDI in multi brand retail.

Retail Market in India

The Indian retail industry has experienced growth of 10.6 per cent between 2010 and 2012 and is expected to increase to US$ 750-850 billion by 2015. Food and Grocery is the largest category within the retail sector with 60 per cent share followed by Apparel and Mobile segment.

Within the organised retail sector, Apparel is the largest segment. “Food and Grocery” and “Mobile and telecom” are the other major contributors to this segment.

Evolution of the FDI policy in multi brand retail

The Government of India had been considering opening up the multi brand retail sector to FDI for some time. They had released a discussion paper in 2010 on the topic and had extensively gathered public, academic and industry views on the issue. In November 2011, the Government came out with its proposal for the new FDI policy. However, unable to achieve political consensus on the issue, they had to shelve their plans for the enactment of the policy. Finally, the Government decided to pass the new FDI policy on multi brand retail in September 2012 to increase investment options in India.

The FEMA notification issued by the Reserve Bank of India permitting FDI in the retail sector was laid before the Houses of Parliament and the same has been cleared without any modification.

The changes in some of the policy conditions indicates government intention to attract more NRIs to invest in retail sector of India and provide a window to foreign retailers to cultivate/ grow the SME segment.

Policy Implications

The FDI policy conditions will have a different impact on the various sub-segments of the retail industry in India. A policy condition might have a low impact in one segment but could be a major stumbling block for another segment. Implications of each FDI policy condition in Mass Grocery, Apparel and specialty stores such as Beauty & Wellness and Consumer Electronics are:

* Minimum FDI of US$ 100 million: Minimum FDI of USD 100 million and a constraint of maximum 51 per cent stake of the foreign entity imply that the minimum investment required by both, the foreign and the Indian partner together, is more than Rs 1000 crore
* 50 per cent of FDI in backend infrastructure in three years: Minimum investment of Rs 220 crore-Rs 250 crore is to be invested in backend infrastructure in the first three years to invest in retail sector of India. However, different retail segments have dynamic requirements of backend infrastructure
* 30 per cent of sourcing from “small” industries: This policy constraint implies that retailers should have at least 30 per cent sales from private label brands or unbranded products sourced from small industries

Policy conditions of 50 per cent investment in backend and 30 per cent sourcing from small industries are the two most difficult conditions to be met for FDI in multi brand specialty retail such as Consumer Electronics, Beauty & Wellness etc.

The Indian Retail Industry

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The Retail Sector in India has seen phenomenal growth in the past years. According to the recent report by Times of India, the Global Retail Development Index 2012 says that, India ranks 5th among the top 30 emerging markets for retail.

Many factors have contributed to the boom in this sector. One of the major reasons for the boom in Indian Retail Industry is the rise of consumerism. Unlike, a decade ago, people are spending more on the luxury goods now than ever before. The increase in the Purchasing Power Parity (PPP) of people has resulted in the shoot up of retailing facilities in India.

India also has a high internal consumption pattern. Due to the large population the internal consumption rate is very high. Also, owing to the diversity in cultures, religions and family values that promote larger expenditure on special occasions like festivals and marriages, keeps the machinery of retail sector well-oiled and working.

More number of Indians are travelling abroad these days. This has exposed people to numerous cultures and ways of life. As a result, there has been greater exposure to brands. This is the main reason for increasing brand loyalty among the Indians.

It is said that the big fat wedding culture of India is also one of the defining factors of the Indian Retail Sector. This is because marriage is a time when everyone irrespective of any religion, caste, creed or economic status engages in buying gifts. This provides a new dimension to the retail sector.

The Indian Retail market can be divided into two parts:

– Organized sector

– Unorganized sector

It has been pointed out that with the large number of opportunities in this sector comes the completion. The Indian Retail industry is now looking for a number of specialized retail professionals. The basic skills required for a person to succeed in the retail industry are conceptual understanding, analytical skills and details, observing the customers and understanding them and understanding global retailing strategies and market among others.

Therefore, it is evident that if you wish to have a career in this ‘semi-hospitality’ sector then you must have knowledge of all the front end issues such as Customer Relationship Management, ERP, Merchandize Mix, Retail Store Operations, and Customer Marketing etc. It thus becomes imperative for an aspiring professional to gain in-depth knowledge of the concept of retailing.

One mode of gaining such knowledge can be online courses. EduKart.com has designed various Certificate Courses in Retail Management, which will allow you to gain an insight of this field. These courses are certified by Retailer’s Association of India. The various courses have been comprehensively designed by industry and subject experts.

Transforming Indian Retail Stores

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Retail in India is unorganized in terms of industry as well as in terms of the selling points. As Indian consumers we have grown seeing Indian retail stores also known as kirana stores. These stores either large or small have always been cluttered, barring the entry of customer and also not well designed to suit the need of the retailer in India.

But now this scenario is changing as retailers in India look forward to better customer satisfaction, sales and footfalls.

Indian consumers have transformed the way they shop. They love to touch and feel the products, have become brand loyal and also look for value for money. A change for better in retail stores in important.

Changes incorporated: The Indian retailers have now understood the need of not just selling products but experience. Indian consumer is now of age when they want to move into a shop try out the products in terms of the packaging, variety and pricing. Moreover, with modern retail coming in, people also look for discounts and deals.

Looking at the consumers need, the neighborhood kirana stores are also now transforming themselves. To keep the customer intact they are bringing in larger variety of products, more brands, proper stacking of products, inventories, space for customer to move across store and choose the product and better deals and discounts. What also gives the neighborhood stores an upper hand is the facility of home delivery, which they offer either at a very minimal cost or at times no cost.

Offering such services only help stores to keep their customers coming back and also enhances the loyalty towards the store.

Consumer’s takeaway: Consumers now like the way retailers in India are transforming their stores. The changes incorporated by these retailers have made people come back to the neighborhood kirana store to shop for their basic needs. Moreover, the consumers have a better prospect to smile upon as they now can choose between going to a modern retail store or the neighborhood kirana store according to their need.

Way forward: Such changes across the retail sector has enhanced the way a consumer shops, making his life easier and convenient. Also, the consumers love it as they can now enjoy value for their hard earned money.

Moreover, looking forward at the Indian retailer stores scenario, with consumers growing knowledge and reach , more and more people will only move towards more organised retail stores in order to serve their customers well. Way forward we will see that modern retail and neighborhood stores will have their own way of surviving in this ecosystem without harming each other’s existence.