India sells the retail dream to global brands

Regulations on local procurement for foreign investors have been eased and could be the first of several changes to make the sector attractive for domestic and international businesses.

India's retail sector is expected to grow by 12 to 13 per cent annually to reach 55 trillion rupees n the April 2018 to March 2019 financial year, according to KPMG. Subhash Sharma for The National

MUMBAI // From luxury brands such as Burberry and Montblanc to high street names that include Zara and Indian stores such as Global Desi, the Palladium Mall in south Mumbai houses some of the biggest names in retail. And it is just one of several shopping districts in the city.

The mall typifies how India’s retail market is on the rise, driven by increasing incomes and a young population.

At the same time, the government is striving to make India an easier place to do business for home-grown and foreign retailers. And although India’s e-commerce industry is surging, bricks and mortar retail also continues to expand, with more and more brands entering the market and new shops and malls mushrooming across the country.

“The Indian retail sector is poised for tremendous growth and this is fuelled by several factors, such as the growing middle-class population,” says Amaan Fakih, the malls chief executive at Runwal Group, which has 2 billion square feet of retail space across Mumbai and is aiming to expand. “Add to this the growing disposable income, a burgeoning services industry and a growing youth population.”

He says that while “consumerism has grown in leaps and bound” over the past decade, organised retail – branded and modern stores as opposed to traditional, unbranded shops that dominate the market and account for 92 per cent of business – is still in its infancy. This leaves huge scope for the expansion of such retail in India.

“With more and more international companies and brands eyeing the Indian market for these very factors, the retail sector is expected to grow,” Mr Fakih says.

The sector is expected to grow by 12 to 13 per cent annually to reach 55 trillion rupees (Dh3tn) in the April 2018 to March 2019 financial year, according to KPMG.

“The retail sector is a vital cog in the wheel driving India’s economic growth story,” says Mukesh Kumar, the vice president of Infiniti Malls, which has two malls in Mumbai and is planning to expand to the national capital region (NCR) around New Delhi and smaller cities.

“The industry has seen a positive uptrend in the past few years, especially in the organised retail segment.”

Aditya Sachdeva, the director of retail at Knight Frank India, says “India is one of the important retail markets for global retailers”.

There are about 400 international retail brands in India, he says.

“Other than the fact that it is one of the biggest economies in the world, its demographics also work in its favour. Mumbai, Bangalore and Delhi NCR are at the epicentre of this retail wave. The majority of global retailers planning to enter the country are considering these three locations in the first phase.”

The Swedish flat-pack furniture company Ikea has plans to open 25 stores in India, with a first outlet expected to launch in Hyderabad next year.

Last month, the prime minister Narendra Modi’s government relaxed the rules for foreign single-brand retailers to make it easier for them to enter the country. A rule that states overseas single-brand retailers opting for 51 per cent or more foreign direct investment into India have to source 30 per cent of their goods locally has been waived for three years for companies engaged in state-of-the-art technology. This is expected to pave the way for Apple to open stores in India, which has been identified as one of the tech major’s most important markets.

“We’re looking forward to opening retail stores in India down the road, and we see huge potential for that vibrant country,” said Tim Cook, Apple’s chief executive.

Mr Kumar says: “With India becoming one of the most open markets for FDI, international brands have taken into cognisance factors such as high economic growth and changing Indian lifestyles, leading to them partnering with a plethora of malls and shopping centres, and setting shop in India’s urban markets.”

There is hope that India will introduce a long-awaited goods and services tax, which will create a uniform system of taxation, along with other measures being taken by the government to boost retail, experts say.

In another step to help the industry, the Indian government last month cleared an act that will allow establishments such as malls and markets to operate 24 hours a day, seven days a week, which would increase the number of jobs and allow shops to better compete with online stores.

“The present government has taken various initiatives to boost the retail community in the country and with all these efforts intact, the sector is expected to grow exponentially in coming years,” says Rahul Jashnani, the managing director of Jashn, a chain of women’s ethnic wear shops that has more than 80 stores across 33 cities in India.

“The retail community in India has high hopes for FDI and other investments and associations, as these will create a new path for growth and development.”

As a result of the positive factors surrounding the sector, private equity has also been flowing into retail property in recent months. JLL India says 10 billion rupees in private equity investment was injected into retail real estate in the first five months of this year, and investment this year could surpass the highs of 2008.

“Economic and political stability, liberalisation of the FDI policy by the Modi government and improvement in the consumer sentiment are some of the factors working in retail and retail real estate’s favour,” says Shobhit Agarwal, the managing director of capital markets and international director at JLL India.

“Quality mall space is coming up with strong pre-commitments, which indicates that retailers also continue to remain bullish about the long-term India consumption story. Looking at the scale of ongoing deals, it seems like private equity investment is back into India’s retail sector with a big bang. It also goes on to show how retail real estate is back in favour with the global investor community.”

But there are hurdles too, when it comes to the retail industry.

Mr Fakih says that although training courses have come up across the country in recent years, there is still an “urgent requirement for more skilled retail manpower”.

A challenge for foreign retailers is understanding India’s often complex regulations, which can often slow down entry into the country.

And there is stiff opposition to the rise of modern retail and foreign brands from many smaller retailers who believe that the entry of bigger brands could put them out of business.

Bimal Bhuta, who runs a grocery store in Mumbai that has been in his family for more than seven decades, says the entry of major supermarket chains such as Tesco’s and Walmart poses a threat to his business and is “unfair competition”.

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