Multi Brand Retailing

Opening up of FDI in Multi brand retail a huge mood lifter for the dim business environment A means to tackle high food prices resulting from lack of proper infrastructure in terms of back end logistics, cold storage and warehousing improve production and distribution efficiencies Possibility of Joint ventures and a could open up flood gates for a host of job opportunities

Online Multi Brand Retailing

FDI in online Multi brand retail continues to be restricted to brick and mortar stores and the online format has not yet been touched While the global retail giants have got clarity on the FDI norms in single and multi-brand retail, a host of online shopping firms and their legal representatives have sought clarity from the department of industrial policy and promotion (DIPP) on how these norms will impact them. This is because the Press Note 1 of 2012 issued earlier in the year imposed FDI restrictions on e-commerce firms engaging in e-retail in the business-to-consumer space while allowing 100% FDI in those engaging in business-to-business retailing. Foreign firms, which are merely a listing platform for brands, are welcome to operate in India. But, foreign firms that buy and sell any goods or services are still banned from conducting their activities source : DIPP Currently e-commerce companies have been able to circumvent FDI limits by some multitiered structuring- Eg. Such companies engage only in B2B e-commerce and not in retail trading. While the service delivery model doesnt need regulatory approvals, a trading model will have to toe the FDI regulatory norms. This technically means that though Walmart is welcome to invest in India, its online arm still would face regulatory hurdles.

How does new FDI norm for retail affect e commerce portals -

Table 1

CATEGORY Foreign sites operating outside Indian shores Foreign sites operating in India, but only lists products Indian Sites Single Brand Retailing B2B portals

Example Amazon, Bestbuy

eBay.com, expedia.com

Flipkart.com, snapdeal.com Dell Indiamart.com, metaljunction.com

Impact No impact unless they want to set up their own venture in India Business would run as usual, as they do not have any inventory Will come under FDI rule if they want foreign investment No impact as FDI norms for multibrand retailing Until now 100% allowed, but now FDI only upto 51 %, thus huge impact

Since business model of brick and mortar stores very different from that of e-retailers, in terms of inventory management, warehousing and sourcing, FDI policy for such a model should be explicitly specified. Normally online retailers set up business in two entities- one handling the warehousing business in which 100% FDI is allowed. The other being the online retail shops like that of say flipkart.com or jabong.com. All overseas investments have been coming in the entity hosting the warehousing business, which legally can be challenged Need for clarity on this issue is essential as e retailers like Flipkart.com have raised more than $300 million through foreign funding http://www.financialexpress.com/news/online-shopping-firms-seek-clarity-from-dippon-retail-fdi-norms/1005044/0

Challenges and Recommendations

POLITICAL CHALLENGES Policy under vehement opposition and thus although FDI has been opened at the national level, independent states have the decision making power with regard to implementation of the policy - 26 out of the 45 cities eligible to allow FDI multi-brand retail operation in the country are located in states that are ruled by opposition( cities with population more than 10 lakh as per 2011 census eligible for this policy) Early entrants like Walmart cannot capitalise as majority of its cash and carry stores are in Non Congress ruled states and convincing opposition parties is a challenge.

In such a case, the individual governments in power should take a consensus of the various stakeholders and key beneficiaries before making any decision on their own. Other Challenges There is also a dearth of buildings with the right configuration, where the logistics of retail can be handled in a seamless, cost-effective manner. Prices of real estate too high, which could be a problem that big retailers have to deal with in future. Foreign players worried about the clause of mandatory $100 million investment which is to be done within the first 3 years. They want clarity on whether the norm requires them to spend additional money on supply chain and logistics even if they acquire frontend retail companies in India. They are also unhappy that expenditure on land costs and rentals will not be counted as investment in back-end infrastructure. Policy still needs clarity with regards to companies buying retail assets in the countrywhether the money can be used to buy front end company or should it be used only to set up new stores in FDI compliant states. For this problem , each application should be examined on merit. As long as it falls within the parameters of existing laws, and the FDI policy, it should be allowed Another challenge facing the policy implementation is the clause of 30 % sourcing norms. The government has stipulated that foreign retailers will have to buy 30% of what they buy from small vendors. It has further said if the investment of a vendor in plant and machinery exceeds $1 million, it will no longer be considered a small-scale vendor for the purpose of computing the 30% local sourcing requirement. Organisations like IKEA and Louis Vitton are asking the government to relax these norms