No One Way To Win This Market
India’s retail market is inviting, exciting but daunting even for the biggest names in the business. Depending on the aim and level of readiness, a retailer may select any of these entry models to expand into the country viz., non-controlling stake, merger & acquisition (M&A), joint venture (JV), licensing and franchising besides setting up own international operations. Many prefer licensing/ franchising over other business models. In recent times, UK’s Simon Carter, USA’s American Eagle Outfitter, Bath & Body Works, Harry’s of London and others have opted for the franchise route to foray into the country’s market. Franchising apart, JVs (Zara, Tommy Hilfiger, Clarks, Calvin Klein, Starbucks have joint ventures in India) are also prevalent. Several renowned global brands have gone on to tie-up with Indian retail majors – Reliance, Future Group, Aditya Birla and Tata – to leverage their deep market understanding and large distribution and retail networks. Leading international brands like Adidas, Pepe H&M, Louis Vuitton, Swarovski, Ikea, Xiaomi among others have already lapped up the SBRT opportunity, while several others are considering. According to experts, having own stores not only means no revenue sharing with a partner, it also enables the brand to own the end-to-end supply chain, strike a direct engagement with customers and manage the overall brand experience for them to enhance loyalty.
Pertinent to note many leading Indian e-commerce businesses are backed by the world’s biggest retailers and e-tailers. Now the global giants have also started to acquire stakes in established Indian retail and e-commerce companies to gain a foothold in the country. Chinese internet mogul Alibaba Group has made a strategic investment in online grocer BigBasket and is reportedly also exploring a joint venture with Reliance Group to take on Amazon and Flipkart. It said that Alibaba is mulling acquiring a large stake in Reliance Retail to form a mammoth digital marketplace and also develop its offline retail businesses in India. Of late, the world’s most valuable retailer Amazon has acquired a stake in Aditya Birla’s supermarket chain ‘More’. Amazon and Indian private equity firm Samara Capital have bought the retail chain for an enterprise value of US$ 580.35 million (Rs. 4,200 crore), according to Reuters.
However, the recent Walmart-Flipkart deal has grabbed the maximum eyeballs. The world’s largest retailer Walmart has bought an initial stake of 77 percent in Indian unicorn Flipkart for US$ 16 billion. Markedly, Walmart already has wholesale cash-n-carry (B2B) business in India that will continue to operate independently from Flipkart, a marketplace model. Indian FDI laws permit 100 percent stake in an e-commerce marketplace.
There’s scope for one and all
Significantly, the Indian market so far has seen dominion of American and European brands. However, the country has now also become a key international market for brands from South Asia, the Middle East, Japan, China, Russia et al. Fashion, food and beverage (F&B) and consumer durable goods remain the topmost categories that attract international brand forays. Lately, Malaysia-based retail chain Kioda and yoghurt brand MooCow have forayed into the country via joint venture and franchise expansion model respectively. Japan’s ‘brand-less’ retailer Muji operates three stores in an exclusive partnership with Reliance Brands; fast-fashion brand Miniso launched in August 2017 already has roughly 30 stores, while top fashion brand Uniqlo is expected to open its first store in the country in fall 2019.
Russia’s Sistema JSFC, through its subsidiary, Concept Group, has forged a joint venture with Delhi-based Saamag Group to introduce Russian kids retail brand Acoola to India. The brand’s first outlet opened in 2017 in Noida. International Turkish cosmetics brand Flormar has forayed into India in partnership with Reliance Retail’s subsidiary, Reliance Trends. Initially, the brand will import a part of its total 700 SKUs to India to retail in select 30-40 Reliance Trends stores, before launching across all the stores. This approach will help them to understand the customer preferences and product choices, believes the company.
The mobility segment is drawing a great deal of interest from foreign players. Chinese brands Oppo and Xiaomi have obtained the SBRT license. Xiaomi India’s first company-owned offline Mi Home store was rolled out in Bengaluru recently, as the company now looks forward to ramping up its retail play riding on the FDI bandwagon after reaching out directly to consumers through its own app and e-commerce portal. The brand was already operating some 35 plus franchisee stores before getting the SBRT approval, however.
Notably, US tech giant and smartphone maker Apple, too, has about 150 franchisee-run Apple Premium Reseller stores in the country. However, the recently announced FDI reforms have paved the way for the brand to open its retail stores. Samsung and Huawei are also said to be weighing their options to go the SBRT way. Vietnam’s Mobiistar and China’s HomTom are the recent entrants in the country’s burgeoning smartphone market. HomTom will be setting up its own CKD manufacturing unit in Noida. The brand has signed up over 100 distributors for retail in north India and is targeting at having 1000 plus flagship stores by end of 2019 that will also act as service centers for its products.
Over the last decade or so, the Indian luxury market’s growth was somewhat tardy, but the segment has started to look up now. The segment, according to Assocham, is poised to grow to US$ 30 billion from US$ 23.8 billion by the end of 2018. India’s rich are increasingly spending on luxury and super-premium fashion products like clothing, accessories like footwear, watches, jewellery, handbags and beauty products along with electronic gadgets. Renowned global luxury brands like Armani, Burberry, Versace, Dior, Louis Vuitton, Paul & Shark et al have been present in India for quite some time. Hermes, Paul & Shark, Tom Ford and Canali have stores through local partners, while Louis Vuitton has obtained SBRT clearance, recently. Moreover, e-commerce platforms Tata CliQ Luxury and Luxepolis are also providing global luxury brands with online avenues to reach out to a wider audience.
India’s affordable luxury market, too, is growing swiftly. According to market research firm Euromonitor International 2016 report, the affordable luxury segment in India is clocking 40 percent per annum. International brands like Michael Kors, Kate Spade, Coach, Diesel and Charles & Keith are catering to this segment, which is driven by aspirational young consumers and affluent upper middle-class who happily shell out extra bucks for an almost luxury-like experience but reasonably priced. Interestingly, up until now, the bigger foreign brands were expanding into India. Now the mid-category brands are also fostering Indian dream. More than 250 mid-section brands are reportedly expected to launch into the country in a couple of years. These include Kiabi, Mavi, Avva, Colin’s, Damat, Tudba Deri to name a few.
Key challenges and hurdles
Generally, nearly all global brands start their journey in India by launching from Delhi, Mumbai and Bengaluru as these metro cities boast of superior infrastructure, cosmopolitan and affluent denizens. Even as the supply of malls and other types of retail real estate has been growing nationwide, it is still hard to find quality locations beyond mini-metros and tier-I cities. Consequently, retailers looking to tap smaller cities and towns have to toil hard or have to restrict themselves to large urban centers only. High rentals, transport, logistics and warehousing remain other infrastructural challenges.
Indian consumers are extremely value-conscious despite being brand-conscious, and some might go for a relatively cheaper brand if it caters them well. Brands may tackle this issue by offering a limited range or tweaking the quality of their products. Interestingly, several global brands have manufacturing bases in India, and therefore, many consumers feel that those brands should retail their locally-made products at lower prices. Swedish furniture giant Ikea, which has recently opened its first store in India, is looking to capitalize on its growing middle class with lower pricing for some of its products. The company operates under SBRT license and has to comply with local sourcing clause.
Since most foreign brands launch in the Indian market through local partners, the challenge may also arise when the partnership fails due to the incompetence of the existing partner or dissimilar views as to how the business has to operate or it could be the brand’s decision to go on its own eventually. Sometimes, a brand may simply fail to crack the market – like Carrefour, Auchan, Bally and Timberland exited the market, for example. But some have made a comeback as well. Dutch retailer Spar exited India and re-launched in 2017 with same local partner Landmark Group and currently operates 20 hypermarkets in the country. Swiss luxury brand Bally re-entered India but with a new partner, Reliance Brands.
US footwear brand Florsheim is re-launching in India with a new licensing agreement with Samar Lifestyle and plans to roll out around 25 exclusive stores in the next four years. UK’s maternity wear brand Mothercare has recently split ways with DLF Brands to join hands with Reliance Group. US-based e-commerce firm eBay has also announced to re-launch its India business after selling its Flipkart stake to Walmart. eBay was acquired by Flipkart in 2017. In the past, Mango, Calvin Klein and Mont Blanc, too, have opted out of old partnerships to forge new ones.
Apart from revisiting their business models, brands may as well need to tweak their offerings to the liking of the locals. For instance, various international fashion brands in India offer products in a broader colour palette and brighter shades, while some add a dash of Indian design sensibilities to their articles like Canali has experimented with bandhgala (traditional Indian men’s jacket), Hermes came up with Sari collection and recently Zara created a buzz with lungi-inspired skirts. F&B concepts McDonald’s Dominos and Starbucks, in addition to the signature offerings, have customized their menus to suit the local taste buds.
Other than the market and operational challenges, the global retailers may have to deal with policy-level hurdles also. India has progressively reformed its business environment and FDI policy to encourage foreign firms to invest in India. However, experts feel that the FDI policy could be simpler if it does away with distinction among various retail channels viz., single brand, multi-brand, physical and online, online marketplaces and B2B wholesale cash-n-carry. On the other hand, Indian traders are demanding the government to make policies that are more favourable to them and help them withstand foreign competition. The Confederation of All India Traders (CAIT) has a lodged protest with the government over the Walmart-Flipkart deal, as it opines that the two have not complied with the prevalent norms in entirety. Competition Commission of India (CCI), a statutory body of the Government of India, has formally approved the deal, however.
Global Cash & Carry players in India
Walmart (Best Price stores)
(JV with Future Group)
Lots Wholesale Solutions
(Part of Siam Makro PCL)
The way forward
Today, more and more consumers across India are looking for wider experiences and adapting to global trends, making them appreciative of brands and concepts from around the world. However, Indians are no less attached to their culture and traditions. Therefore, brands may need to “glocalize” themselves to strike a chord with them and become successful. Besides, the retail environment in India is quite evolved now – the new malls are no more just shopping complexes but are lifestyle experience. Organized retail is gradually penetrating into Tier-II and –III towns also. Despite various challenges and intensified competition from other international brands and domestic players, the market seems to be highly rewarding, nevertheless.
A BCG report estimates that India is on its way to become the world’s third largest consumer economy by 2025 and will be next only to the US and China. Further, World Bank Group’s Ease of Doing Business 2018 report also ranks India among the top 100 countries, while Global CEO survey dubs India as the fifth most attractive investment destination in the world. In conclusion, one can say that size apart, an impressive growth rate and higher consumer and investor confidence will continue to inspire global brands and retail companies to expand into India.
FDI-approved global brands/retailers in India
Daniel Wellington AB