Nov 25 2011
The Indian government finally got its
shit act together and approved the rules enhancing foreign direct investment (FDI) into the Indian retail segment. The bill had been hotly debated for the past 2-3 years since it has the potentially to affect many people.
The new rules allow major big box retailers that sell many brands like Walmart, Carrefour and Tesco to own 51% of the business. Whereas single store brands such as Reebok, Apple and Prada can own 100%. The timing might not be great but India is the last big market that has not been tapped yet and many brands might try their luck at the Indian consumer to grow their sales.
Locally, the retail industry is divided into two categories: organized and unorganized (aka kirana stores). Many reports have shown that 90% of all sales flow through the unorganized retail segment. With the new guidelines, many are hoping that the organized retail sector can grab a larger share of the pie and in the process bring about a better experience for the consumer. Once of the reasons the bill was stalled for so long was the concern about how the “kirana guy” would cope if Walmart setup shop next to his store. That’s a valid point, however I think it forces the kirana shop owner to provide a much better customer experience since he can’t compete on price. Unfortunately, the concept of customer experienece is so alien to them that many will end up closing shop since they won’t be able to adjust. On the flipside, I see many kirana shops converted into an extension of a major retailer who would service the local area and deliver the goods.
The bigger question for me is how the e-commerce space is going to play out with the new rules in place. If Amazon.com sets up shop in India will it partner with FlipKart.com or Pantaloons? Will the kirana store replace companies trying to build out the last mile mechanism for delivery (Chhotu) and payment collection (GharPay)?
It’s very early days in the retail sector and I would imagine whatever worked for these big box retailers in other countries will be very different from what ends up working in India. That’s where the local retail partner comes in and adds value since they know the local demographs, environment, buying patterns, etc… Most of the retail stocks are up today since the future looks very bright for retail and the companies that are already executing in the retail space.