As the third biggest Asian economy India is increasingly cited as an attractive market for retailers to exploit, but how easy is it to set up shop there?
Why are people talking about it?
Prime Minister David Cameron led a trade mission to India last week, taking with him an army of leading business figures including Kingfisher group chief executive Ian Cheshire, the only retailer present. The Government wants to strengthen ties between the UK and India, which is seen as a key emerging market.
What is the appeal?
India is the third biggest Asian economy, behind Japan and China, and has a population of 1.21 billion. It is set to surpass China to become the world’s most populous country by 2030, and is expected to have a population of 1.6 billion by 2050, according to UN statistics.
Last year retail sales totalled $471bn (£302.1bn), and this is expected to rocket in the coming years. “There’s no doubt that in the long term there is huge potential,” says Planet Retail research director Rob Gregory. “It’s the next China.” Gregory points out that there is a lack of organised retail in the country and that grocery retailing in particular is “totally new”. He also adds that there is a huge middle class with big spending power.
How easy is it to set up shop?
Not very. Regulations introduced in 1997 threw up many obstacles for foreign retailers trying to open stores in India. The law states that retailers can only open in the country via a franchise arrangement or joint venture, unless they open wholesale operations.
A recent amendment enables retailers to open on their own if they sell only one brand in stores. However, these regulations make it “impossible to enter” for most retailers, according to Gregory.
Gregory says there was “huge interest” in the country two to three years ago but then it “died off slightly”. He said retailers were “over-optimistic about the short-term potential”, and based plans on getting investment that never materialised due to the recession.
Will the situation improve?
The Indian government has come close to amending the laws to make it easier to set up shop. They haven’t materialised, but “there’s an indication they will”, says Gregory.
Which retailers are trying to crack it?
Marks & Spencer have 18 stores in India through a joint venture with Reliance and is continuing to open more, with a focus on larger formats. Next, Debenhams, Bhs, Body Shop and Hamleys all have stores. Tesco and Walmart have entered through partnerships with local players, and have opened wholesale stores, which supply local hypermarkets.