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After protests, big retail faces licensing woes

After protests, big retail faces licensing woes
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First Published: Tue, Apr 08 2008. 11 55 PM IST

Updated: Tue, Apr 08 2008. 11 55 PM IST
Mumbai/New Delhi: Ravindra Kumar has an unusual job. The 42-year old is administration manager in charge of licences for discount retailer Vishal Retail Ltd. He does just that, but he has discovered that a one-man team can’t handle all the work involved. “I am trying to build my team,” Kumar says, “because the quantum of work (of securing licences) is beyond one person.”
Industry body Retailers Association of India says that at least 30 licences are required to open a store.
And so, a few weeks into the job, Kumar is looking for more people even as Vishal plans to more than double its stores from the current 100 in a year’s time.
The licences deal with a variety of issues and without them stores cannot open for business, not without attracting penalties from one government department or another. One licence allows retailers to stock yarn—this is needed because yarn is inflammable. Another permits them to put up a signboard. And yet another allows them to play music. Some licences are issued by the local administration—typically a municipal corporation. Others may require knocking on the doors of the metrology department which looks at weights and measures.
And running around to various government departments keeps managers such as Kumar busy.
As organized retail takes root in India, companies in the business are discovering that opening stores is one of the hardest parts.
The organized retail business in India, or formal or modern retail as some term it, is still in its infancy. The country’s population has been served for decades by small mom and pop establishments or kirana stores, and while some of them can run the risk of operating without securing all the licences involved, organized retail chains cannot.
The companies involved are the subject of much scrutiny because some say that they will take away the livelihood of small store owners. Protests against such chains have turned violent in some parts of the country and some modern retail stores have been trashed. A few states have barred organized retail chains from opening stores and the Union government last year commissioned a think tank to conduct a study on the impact of organized retail chains on small stores. Mint reported on the findings of this yet-to-be-submitted report in December which found that both sales and profits of small stores had been affected in areas where modern retail outlets had opened for business.
Given this, organized retail chains cannot afford to flout norms.
The result is often a long wait for licences.
“It could take anything between 60 days for all the licences to 60 days for each,” says Aarif Sheikh, director, marketing, at Plaza Centers India, an Israeli mall developer that plans to set up 50 malls in India over the next five years. He says he weeps enough to use up “a 100 hankies to open a store.”
Retailers, fed up of the wait and the uncertainty of getting everything on time for a store opening, say there is a need to rationalize the process of getting these licences and doing away with some altogether. They add that rules related to some licences were passed decades ago and argue that the process has not kept pace with the industry, or the current boom.
“For an entrepreneur, it is far more complicated to open a superstore or a mall rather than to incorporate a company in India, in view of the registration and licensing processes involved,” says Vikram Shroff, senior associate at Nishith Desai and Associates, a Mumbai-based law firm.
What’s frustrating for retailers is that despite a track record or proven expertise, the rules remain as cumbersome for each and every store opening. “You could be a listed company, run hundreds of stores and employ thousands of people but the law does not differentiate between you” and anyone else wanting to open a store, says Damodar Mall, head of innovation and incubation at the Future Group, the parent of India’s largest listed retailer, Pantaloon Retail India Ltd.
The retailers’ association is now lobbying the government for a “single window” clearance for all licences; for “one-time” licences for stores across an entire state; and a review of whether some licences are needed at all.
For instance, one large department store was told it was violating the weights and measures act by selling products without packaging when all it was doing was allowing customers to sample perfumes and cosmetics.
With organized retail growing at 30% a year, licensing departments at retailers are growing. Outsourced service providers who help with licensing have also discovered an opportunity. Subhiksha Trading Services Pvt. Ltd, which runs neighbourhood and mobile store chains, has a division in its legal department and four people in New Delhi who work only on getting licences, says Ashu Phakey, president, Delhi, for Subhiksha. Shoppers Stop Ltd, which runs department stores, bookstores, home accessories, children’s wear, and cosmetics chains, and fast food chain McDonalds, also have separate departments for licensing.
Still, regulations can vary across states and it is hard for retailers to get a fix on everything that is required. “Entrepreneurs also encounter delays in starting retail businesses because adequate and updated information on all registrations and licences required may not be easily available,” Nishith Desai’s Shroff says.
Plaza Centers, whose first mall is coming up in Pune, is creating a “knowledge bank” of what licences are required to open a mall in which state and where. “As soon as we decide to open a store, we have state-wise checklist of what licences are required there and where to apply for it because no one really tells you these things,” says Plaza Centers’ Sheikh.
Obtaining all the licences, along with making sure that the real estate space is ready, could lead to delays of between three months and six months, according to real estate consultant, Jones Lang LaSalle Meghraj (JLLM). It may also require having to go to as many as 18-19 separate government departments.
In order to control at least one aspect of the store opening, retailers now want to levy penalties for delays in mall openings, but mall developers are resisting this.
Retailers can acquire some licences only after they have been handed over the space for the store and any delay in that could cascade into further delays down the line. “Retailers bear the brunt of mall opening delays because more licences are required and there is no appreciation of what delays in store openings can mean for retailers,” says Anuj Puri, chairman and country head of JLLM.
Sheikh probably knows what it?means—more?handkerchiefs.
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First Published: Tue, Apr 08 2008. 11 55 PM IST