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First FDI backed multi brand store may take 15-18 months
10
Oct '12
Despite the Indian government announcing up to 51 percent FDI stake in multi-brand retail to foreign retailers, it would take up to 15-18 months before the first store takes shape, say experts. The Reserve Bank of India also notified the decision on September 22.

Even Mr Scott Price - CEO and President of Walmart Asia in an interview to The Wall Street Journal admitted that it is looking to open its first outlet in India in 12-18 months. This despite that it already operates a wholesale joint venture in India with Bharti Enterprises Pvt. Ltd.

The common thread running through each of the experts, fibre2fashion spoke to say - setting up a store takes a long time as each retailers needs to have a solid backend, train employees, tie-up with suppliers as well as the time consuming process of getting licenses from various authorities also needs to be factored in.

“Only 9 states in India have given consent to FDI in retail which are spread out across the whole country for which they would need to have a good structure”, reveals Rachna Nath – Leader (Retail & Consumer) at PriceWaterhouseCoopers India.

She adds, “Again 50 percent of the investment needs to go in to backend, which cannot be land or rental. So they will have to set up warehouses, production units, logistics, etc. Merchandising and sourcing also has to be right. Even for FMCG products, the fulfillment rate for a retailer is just around 70-75 percent”.

“Getting various licenses from the central, state and local governments is also time consuming. Considering the time consumed in each of these processes, it can be safely assumed that the first store can be made operational only in 15-18 months”, she explained.

Mohit Bahl – Partner at consulting firm - KPMG (Transaction Services) is of the opinion that operating models need to be set-up, aligned to the supply chain in the specific states which will allow retail FDI.  He cites an example of the Indian partner operating a pan-India network while the joint venture with the foreign retailer can operate only in 9 states.

“Having two separate supply chain streams can only bring inefficiencies, he says.  “Working out sourcing and establishing a network of suppliers from the small scale sector to comply with the 30% sourcing norm is a big challenge. Alongside operating structures for joint ventures needs to be formulated and clarity is needed around how the state permissions will work”, he informs.

Siddharth Bafna, Partner at Lodha & Co says, “Setting up of say a retail outlet just of 25,000-40,000 sq feet involves finding employees, providing them training, tying up with suppliers and a host of other issues and takes between 6-8 months. Considering the size of stores the global retailers will set up, the first FDI backed multi-brand store may take atleast 15 months”.

On the crucial question of a rollback of the FDI policy if a new political entity comes to power in the near future, Rachna avers that it would not be an easy decision for any party that comes to power. “On one hand the government says it needs one billion dollars investment in infrastructure of which 50 percent has to come from the private sector. Under the circumstances, no government can afford to scare away foreign investments”, she opines.

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