Major Int’l Retail Investments Raise Hope for FDI Recovery in India

June 28, 2012 Posted by India Briefing Reading Time: 3 minutes

By Ian Bhullar

Jun. 28 – A spurt of high-profile foreign investment into India is raising hopes for the enhancement of investor confidence and the recovery of the country’s FDI inflows. Three events in the past week – IKEA’s proposed entry, and expansion plans by Tommy Hilfiger and Coca Cola – indicate that growth in India’s consumer demand is still perceived as dependable, improving the outlook after a 41 percent drop in India’s FDI inflows in April.

Swedish home furnishing brand IKEA brought proposals to the Indian government last Friday to invest €1.5 billion (INR10.5 billion) in a 25-store single-brand retailing venture. As IKEA intends to invest through a wholly-owned subsidiary, this is set to be the largest investment of its kind since the government removed an ownership cap on single-brand retailers in January 2012. The proposal paves the way for IKEA to sell its usual household furnishings, as well as consumer electronics and food.

Another wholly-owned subsidiary, Coca-Cola, and its bottling partners announced on Thursday that they would invest US$5 billion (INR284 billion) into India in order to increase their market share and compete with rival Pepsico.

Concurrently, the Times of India has reported a growth in joint venture investment among foreign single-brand retailers. French fashion brand Promod is seeking to buy a 51 percent stake in the Indian owner of its franchisee rights, Modex Trading Pvt. Ltd; and Hong Kong’s Esprit is converting its distribution agreement with Madura Fashion and Lifestyle into a JV.

Tommy Hilfiger, in its 50-50 JV with Ahmedabad-based Arvind Ltd, has also recently submitted proposals to the Department of Industrial Policy and Promotion to invest INR600 billion as it seeks to create 500 new stores, bringing its Indian total to 631 by 2017. In March 2012, the JV reported revenue growth of 400 percent. It is capitalizing on this growth through the expansion of its presence in India, with many stores set to run as franchises.

“It has stayed away from much discounting and created a loyal following across metro cities,” says Arun Sirdeshmukh, former CEO of Reliance Trends, to explain Tommy Hilfiger’s success.

Management consultancy firm AT Kearney has recently listed India as the fifth most attractive retail market in the world, with expected market growth of 15 percent to 20 percent in the coming five years. Market growth is supported by overall GDP growth as well as increasing urbanization.

The Indian government’s January approval of 100 percent FDI in single-brand retail is also seen as a boon to India’s growth potential. Despite political division, Commerce and Industry Minister Anand Sharma assured investors that the government would drive through the same for multi-brand retail.

On his plans for opening up to FDI, Sharma said: “The decision stands and I can say with absolute clarity in my mind that the country and the government are committed to go forward. We do not believe in faltering.”

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