Multi Brand Retailing

7/30/2019 Multi Brand Retailing

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Multi Brand Retailing

Opening up of FDI in Multi brand retail a huge mood lifter for the dim businessenvironment

A means to tackle high food prices resulting from lack of proper infrastructure in terms ofback 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 jobopportunities

Online Multi Brand Retailing

FDI in online Multi brand retail continues to be restricted to brick and mortar stores andthe online format has not yet been touched

While the global retail giants have got clarity on the FDI norms in single and multi-brandretail, 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 operatein 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 multi-

tiered 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 -


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Table 1

CATEGORY Example Impact

Foreign sites operating

outside Indian shores

Amazon, Bestbuy No impact unless they want to

set up their own venture in

India

Foreign sites operating in

India, but only lists products

eBay.com, expedia.com Business would run as usual,

as they do not have any

inventory

Indian Sites Flipkart.com, snapdeal.com Will come under FDI rule if

they want foreign investment

Single Brand Retailing Dell No impact as FDI norms for

multibrand retailing

B2B portals Indiamart.com,

metaljunction.com

Until now 100% allowed, but

now FDI only upto 51 %, thushuge impact

Since business model of brick and mortar stores very different from that of e-retailers, interms 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 warehousingbusiness 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 morethan $300 million through foreign funding -

http://www.financialexpress.com/news/online-shopping-firms-seek-clarity-from-dipp-

on-retail-fdi-norms/1005044/0

Challenges and Recommendations

POLITICAL CHALLENGES

Policy under vehement opposition and thus although FDI has been opened at thenational 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 arein Non Congress ruled states and convincing opposition parties is a challenge.
http://www.financialexpress.com/news/online-shopping-firms-seek-clarity-from-dipp-on-retail-fdi-norms/1005044/0http://www.financialexpress.com/news/online-shopping-firms-seek-clarity-from-dipp-on-retail-fdi-norms/1005044/0http://www.financialexpress.com/news/online-shopping-firms-seek-clarity-from-dipp-on-retail-fdi-norms/1005044/0http://www.financialexpress.com/news/online-shopping-firms-seek-clarity-from-dipp-on-retail-fdi-norms/1005044/0http://www.financialexpress.com/news/online-shopping-firms-seek-clarity-from-dipp-on-retail-fdi-norms/1005044/0


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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 logisticsof 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 dealwith in future.

Foreign players worried about the clause of mandatory $100 million investment whichis 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 front-

end 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 country-whether the money can be used to buy front end company or should it be used only toset up new stores in FDIcompliant 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 % sourcingnorms.The government has stipulated that foreign retailers will have to buy 30% ofwhat 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

Documents

Multi Brand Retailing