Foreign retailers, big and small, are scrambling to make a mark in the big Indian bazaar

It’s the company that’s showing foreign entrants how to succeed in the Indian retail maze. Swedish fashion retailer Hennes & Mauritz has been on the fast track from when it opened in September 2015. This month, it’s moving further into India’s second-tier cities and launching in different corners of the country — Indore, Coimbatore, Amritsar and Kolkata. In just two years, H&M has opened 17 stores and expects to end 2017 with 25. In the Indian market, that pace represents lightning speed.

When they first came to India in the early noughties, many foreign retailers floundered, flummoxed by complex market conditions. They also found their way blocked by State governments which feared Big Retail’s arrival would put kirana stores out of business and anger the small-trader community. “It was always two steps forward, one step back,” remarks one foreign retailer. In addition, there was the disruption caused by fast-growing online players.

Today, though, foreign retail chains are finally finding their feet. So you’ve got everyone from giants like Marks & Spencer and IKEA to fashion stars like H&M and even newer, fast-moving players like Japanese low-cost retailer Miniso that opened its first store last month and which is already talking about opening 210 stores by 2018 and making India its fifth-largest market.

“We’re seeing interest from companies of all sizes, from very large like Walmart and H&M to the smallest startups,” says Devangshu Dutta, chief executive of retail consultancy Third Eyesight.

The front-runners

Leading the way are fashion and accessories stores which are grabbing opportunities presented by young Indians, women especially, who’ve turned to western-wear in a big way in the last decade. Third Eyesight estimates some 300 fashion and accessories brands have entered India in recent years. “Fashion, accessories and beauty are areas where international brands and retail concepts are most transportable across borders,” says Dutta.

At the top of the fashion market are chains like H&M and another heavyweight, Zara, which entered India in 2009 and whose turnover is now over ₹1,000 crore. H&M had 2016 sales of ₹489 crore, up more than 80 per cent from the previous year.

Also in the fashion fray are a string of smaller chains like Forever 21 which is tied up with Aditya Birla, and new arrival, Splash India, which is a West Asia chain, and several others.

That’s not all. Amazon is soon set to make an offline debut in India when it opens a sprawling 44,000-sq ft Amazon Fashion Studio in Gurugram. India’s a key market for Amazon and this is only the third Amazon Fashion Studio globally after London and Amsterdam. Amazon aims to offer an entirely new retail experience with space for fashion brands to stage shows and a host of other offerings.

But it’s taken time for even the largest foreign retailers to get into high gear. M&S made a slow start a decade ago but now has 57 outlets, one of its largest networks outside the UK. It has a five-storey Mumbai flagship store and is expanding in tier-2 cities like Pune and Jaipur. Its latest foray has been to Raipur. M&S reports 16 per cent overall sales growth and faster growth in apparel.

Beyond borders

Other global retail stars like IKEA are also getting ready to dig deep roots here. IKEA’s moving slowly but steadily and will open its first 400,000-sq ft store in Hyderabad next spring.

Another sprawling superstore spread over 450,000 sq ft will open in Bengaluru next year. IKEA has been hugely successful in Asian markets like China and hopes to repeat this performance in India.

Retailing was once considered a business in which it was tough to cross borders but that’s been changing over the last two decades. So it isn’t just big names that hope to be over-the-counter winners in India. A string of smaller retail chains from China, Malaysia and even Turkey are looking to enter India and are hunting for franchisees. A giant like M&S has Reliance Brands as its local partner.

Franchise India chairman Gaurav Marya says over 50 foreign firms (including restaurant chains) are entering or about to enter the market. One such is Malaysian fashion chain Kioda — it specialises in Korean-inspired fashion — which is on the verge of launching and is ambitiously talking about opening 200-300 stores in India. Says Marya: “Tier-2 Asian brands are coming to India. And the Chinese are looking at India in a big way. This wasn’t happening before.”

While the market’s moving rapidly, the Government’s stepping forward at a much slower pace in certain areas and there’s still a patchwork of regulations. It now allows 100 per cent FDI in single-brand retailing (Apple should be able to open its stores soon). And it’s permitted 100 per cent FDI in food retailing. But the catch here is the produce must be ‘made in India’. Nobody goes to a supermarket just to buy food so that hasn’t attracted many takers. Now, the Government’s looking at allowing foreign supermarkets to have up to 25 per cent non-food offerings.

Even chains like Walmart, which haven’t been allowed to open supermarkets in India, are now assembling ambitious expansion plans. In India, Walmart serves as a wholesaler that sells to other smaller traders and hotels and restaurants; that’s turned out to be a profitable business with huge opportunities. Walmart has 21 stores currently and is thinking of opening up to 50 more.

Tricky area

Inevitably, most retailers are still looking at India’s top 5 or 10 cities but retailers like M&S are going beyond that frontier. Also, finding the right mall space remains tricky.

As retail picks up once again, a new wave of mall development is gathering pace.

“The opening of FDI in retail created more demand and many international brands, which were waiting on the periphery, have taken up significant space in malls,” says Kunal Jaiswal, Offices Services senior director at Colliers International India. But in the end, it’s the Indian consumer who’s attracting foreign retail to India. Says Marya: “Nobody can ignore the Indian consumption story. ‘Consume in India’ is our story.”

(This article was published on September 19, 2017)

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