Active Stocks
Mon Mar 18 2024 15:55:53
  1. Tata Steel share price
  2. 149.60 5.69%
  1. Tata Motors share price
  2. 972.20 2.75%
  1. ITC share price
  2. 417.40 -0.51%
  1. State Bank Of India share price
  2. 730.70 -0.18%
  1. ICICI Bank share price
  2. 1,082.00 0.32%
Business News/ Opinion / Online-views/  From market place to multi-brand, why India’s retail policies must evolve
BackBack

From market place to multi-brand, why India’s retail policies must evolve

In retail, India can be ahead of the curve in adoption of omnichannel and even use of artificial intelligence or voice-assisted sales

Indian modern retail has a chance of leading the way for global retailers. Photo: Pradeep Gaur/MintPremium
Indian modern retail has a chance of leading the way for global retailers. Photo: Pradeep Gaur/Mint

Much has been written about last week’s announcement of Walmart Inc. purchasing India’s largest online retailer Flipkart for a hefty $16 billion. Yes, the announcement is about the imminent future of retail, about consolidation and omni-channel. It is also about Walmart taking its arch rival Amazon head-on in what the former described as one of the world’s most attractive retail markets. But that’s not all. It’s also about the company’s decade-long tumultuous journey in India unfolding as it looks at selling directly to the consumer. It’s about India being the global testbed for some of the world’s largest companies. It’s about survival.

To understand, let’s step back a bit. India’s foreign direct investment (FDI) policy for retail differentiates between single brand, multi-brand, brick and mortar and online, online marketplaces and wholesale cash and carry. Some of these constructs were formed over a decade ago when modern retail was just taking off. At that time, there were fears that India’s large traditional market could be impacted by the entry of large foreign retailers. A decade on, traditional retail channels still account for over 90% of the overall retail trade in India’s largest sector of consumer packaged goods (CPG).

Moreover, even after demonetization and implementation of the goods and services tax (GST), which is accelerating the conversion of the unorganized market to organized trade and even digital adoption, traditional retailers continued to outperform. Between 2015 and 2017, India’s modern trade sector which accounts for just 8% of the overall CPG retail sector was the laggard growing at 9.5%, which was below the overall retail market’s growth rate of 11.1%.

Meanwhile, traditional channels like the neighbourhood grocery stores which account for close to three-fourth of the overall market, grew at a higher clip of 11.3%, according to Nielsen.

Let’s look at fashion where we have brands like Benetton, Nike, Adidas, Zara and Hennes & Mauritz (H&M) classified as single-brand retailers. This sector has seen a lot more liberalization with the latest tweaking of the policy earlier this year allowing for 100% FDI under the automatic route for single-brand retailers. Today the fashion and lifestyle market in India is roughly about $100 billion. About 80% of this is unbranded, according to Ananth Narayanan, chief executive officer, of the Flipkart-owned Myntra-Jabong combine. According to Narayanan, the shift to branded fashion will be a function of India’s growing GDP (gross domestic product), it’s a journey that has happened in many other markets.

Whether we look at Walmart’s acquisition of Flipkart or even Amazon.com Inc.’s acquisition of Whole Foods Market Inc. for $13.7 billion less than a year-ago there is a growing consensus that retail in the future will not be about online or offline. It will be about providing the consumer a uniform experience across channels with facilities like buy online and collect from a store or walk into a store and get a doorstep delivery.

Yet, India’s FDI retail policies continue to differentiate between the channels. There is also the added complexity of single-brand and multi-brand.

Online marketplaces like Amazon, Flipkart, Myntra and Jabong can sell multiple brands, likewise wholesale cash and carry stores are allowed 100% FDI. Meanwhile department stores and super market retailers like Future Retail Ltd and Shoppers Stop Ltd can raise at most 51% under FDI and that too this varies across states.

The varied rules for the different models has created an uneven playing field between domestic multi-brand retailers and online marketplaces. The former’s inability to access foreign funds as easily has already led to considerable consolidation. Whereas, the story for online retail is panning out differently. Walmart now owns over three-fourth of India’s largest e-tailer, making it India’s second-largest retailer after Reliance Industries Ltd’s retail unit.

Given the developments the whole conversation about online and offline is redundant. So is the conversation of multi-brand and single-brand.

In fact, Indian modern retail has a chance of leading the way for global retailers. In technology, it’s already happening. Last year, ride sharing service company Uber decided to test new features here like offline search and call to ride in 2017. In retail, the country can be ahead of the curve in adoption of omnichannel and even use of artificial intelligence or voice-assisted sales. What it requires is vision.

Shop Talk will take a weekly look at consumer trends, behaviour and insights.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 24 May 2018, 11:21 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App