Govt. notifies 100 % FDI in single brand retail, what is in for Online Retail?

After getting in to quagmire with oppositions over 51 % FDI in multi branded retail format, the Government of India yesterday notified 100% FDI in single-brand retail, paving path for global chains like Adidas, Louis Vuitton and Gucci to have full ownership of their India operations.

Referred to this notification, iamwire tried to map out its relevance in burgeoning e-tail ecosystem in India. In our view, undoubtedly this is a positive step for online retail, however, it is still to be seen whether its ambit will cover online also or not. Assuming e-tail is a part of retail; there is a high probability of a substantial foreign investment going significantly in to Online, taking overall Retail to a new level of value and volume.

Single-brand retailing is expected to get huge boost in terms of foreign investment from a measly $45 million in the last 5 years. Throwing light on 100 % FDI in single brand retailing, Kumar Ashish, an Industry watcher and Consultant at Wirefoot India, said “100% FDI in Single brand retailing can contribute half a percent of total FDI in next 5 years and, if even 10% of this investment can be planned for Online retail, a new online opportunity market of about USD 400 mn or INR 2000 crore in next 5 years will be up for grab only through single brand retail on internet.”  IKEA, M&S and few other foreign retail giants seem to be among definite starters as they already have significant sourcing from in-country suppliers. He added further “The next few years can see many luxury brands entering India through multi channel, besides the existing foreign brands expanding through multi channel retail, also due to lack of retail space and non-metros bringing in good sales”.

The confidence in the above numbers is supported by the fact that India will approach 5 million super rich customers for luxury goods in the next 3 years from under 2.5 million currently. Internet and mobile penetration at super high rates will broaden the base for online retail and m-commerce further.

Under the light of this notification, the larger beneficiary in e-tail will be life style categories such as apparel, high end fashion, footwear and gourmet packaged foods. In addition to that, Indian online arena would inevitably get the buzzing competition through the likes of Marks and Spencer (Food & non- food), Jimmy Choo, GAP, LVMH including many others.

Meanwhile, Online retail has potential to transcend the boundaries of physical retail and it opens up the pool of millions of consumers in waiting who otherwise cannot access metros based luxury/lifestyle stores or any other specific international brand. According to the latest industry estimation, India has over 2.1 million Luxury consumers, consequently new online single brand retail formats will generate potential buzz for aspirational international brands choosing to enter Internet medium through transactional websites.

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The notification ushers new dimension to the brick & mortar retail, however it will also contribute to e-tailing to thrive and prosper by offering alternate potential sales channel for international brands looking pan India reach.

With its decision to allow 100 percent in SBRT, the government is looking to push domestic consumption, create jobs, moderate inflation and boost FDI inflows in an economy that has been slowing due to global financial uncertainty. Although, the road ahead is not without bumps and implementation challenges, iamwire wishes it heralds a new dawn in Indian organized retailing by bringing in much needed capital, efficient processes along with the best practices adopted by large global retail giants.

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