How new FDI norms may help companies spread wings in India

In 2015, the government relaxed e-commerce rules for foreign single brand retailers investing in India by allowing online sales over and above their brick and mortar presence. This is already being leveraged by brands such as Spanish retailer Zara, fast fashion brand H&M and, more recently, IKEA.

In its revised policy announced on Wednesday evening, the government acknowledged that opening stores before commencing online sales “creates an artificial restriction and is out of sync with current market practices".

As a result, brands are allowed to sell online before opening stores. It has, however, maintained that those applying under the single brand retail trading policy will also have to open a store within two years of starting online sales. The policy change is positive as it lowers entry barriers for retailers, said Anil Talreja, partner, Deloitte India. “Before you touch the Indian soil, you can basically touch the Indian consumer now," he said.

Online sales have picked pace in India as more shoppers log on the internet to buy everything from phones to sneakers. Brands have closely followed suit.

In 2018, apparel retailer H&M launched its online sales in India, three years after it opened its first store in the country. More recently, the fast fashion label, which entered India through 100% foreign direct investment, tied up with online retailer Myntra to sell its clothes, shoes and accessories on a third-party marketplace.

Earlier this month, IKEA, the world’s largest furniture retailer, began online sales in Mumbai even before it opened its store in India’s financial hub, which would be its second in the country. This is in line with IKEA’s global plans where it is pushing sales using e-commerce and even opening small stores with limited inventory, besides building its signature large format stores.

Clearly, retailers and shoppers worldwide are relying less on physical stores as the mainstay of shopping for goods. In India, which is a still a huge brick and mortar market, revised policies for foreign retailers are clearly pointing to that trend. By 2020, India’s e-commerce market is expected to touch $150 billion because of the presence of large retailers such as Amazon and Walmart-owned Flipkart.

Earlier, brands could take up to a year to open a store from the time of applying for the single brand retail FDI under the automatic route as they sought the right location, and shored up hiring.