That’s the question being asked as overseas brands and domestic companies digest projections that the country’s retail industry will hit that sales level in 2020. The forecast comes as the industry saw growth in only the single digits earlier this year, although sales picked up a bit in October.
India is already among the world’s top-five retail markets, with growth in the high-double digits over the last decade. The increases have been fueled by the nation’s increasingly aspirational 1.3 billion people and GDP growth that has been hovering between 6 and 7 percent, while many other economies are flagging.
While India has long been touted as a market of the future, the question of timing has come up often — is it too late to enter? In addition — given high-profile flops, such as U.K. department store chain Debenhams and French retailer Carrefour — the seemingly endless legal complexities and regulations; an overall population that remains relatively poor and price sensitive; a sector that continues to be dominated by small mom-and-pop stores, and brands that linked with the wrong partners, is the market simply too complex for overseas players to succeed?
“In hindsight one is wiser, but many of the brands that came to India in the Nineties and early 2000s were probably too early and that is why they could only limit themselves to four or five cities in India and did not do much. But today if they were to start and say, ‘Look, we will be slow and steady, but with a 10- to 15-year horizon,’ then they can look at $100 million to a billion dollars in revenues,” said Arvind Singhal, chairman and managing director of consulting firm Technopak.
He isn’t the only one with this viewpoint. Global retailers feel that while it is important to tread carefully in India, the market is on the cusp of exploding.
“The 21st century will be the century of India,” Tadashi Yanai, founder, chief executive officer and president of Fast Retailing, said in New Delhi last month while launching Uniqlo in India. “Fast Retailing has long wished to open stores in India, in view of the tremendous potential of a nation of 1.3 billion people that generates annual GDP growth of 7 percent and has an average age of 27.”
Uniqlo’s entry completes the presence of the big three that have been spurring retail worldwide. Zara, owned by Inditex, launched in India in 2010, in a 51 percent-49 percent joint venture with Indian multinational conglomerate Tata Ltd.’s retail arm, Trent Retail India. It operates 22 stores throughout the country and its growth has exceeded expectations, shooting past the 10 billion rupee, or $141.3 million, sales mark in 2017.
As of March 31, Zara had sales in India of 14.38 billion rupees, or $203.2 million, a growth of 17.7 percent over the previous year — slower than in previous years, but still indicative of strong consumer demand.
A second, and later, joint venture between Inditex and Trent Retail for premium brand Massimo Dutti had revenues of 63.58 billion, or $89.8 million, in the last fiscal year, a growth of 39 percent over the previous year.
H&M also has been seeing substantial growth in India, with 42 brick-and-mortar stores since its launch in 2015 and its own e-commerce platform, which launched last year.
“We see huge potential in India,” said Janne Einola, country manager of H&M India. “H&M has grown fast in India, with sales of 11.08 billion rupees [or $155.1 million] for the year ending Nov. 30, growth of 29 percent over the previous year.”
This was lower than the previous year, when the company doubled its revenues to 8.6 billion rupees, or $121.5 million.
H&M follows a December to November financial year.
The retailer has been quick to pick up the pulse of the Indian market and helped raise its profile in the region this year with its first campaign featuring Bollywood film stars. These include younger artists such as Aditi Rao Hydari, Diana Penty, Amyra Dastur and Aditya Seal. It also has opened stores in bigger metro cities such as New Delhi and Mumbai as well as in smaller ones such as Jaipur and Indore in central India, and Coimbatore in the South.
H&M further bolstered its presence in the market via a collaboration with e-commerce company Myntra, which was unveiled in August by Fredrik Olsson, managing director of H&M. The collaboration added 22 million potential new consumers to its customer base.
While Zara had first mover’s advantage, both H&M and Uniqlo came in after a major change in regulations in 2012, when the Indian government allowed 100 percent foreign direct investment in single brand retail, and 51 percent in multibrand retail.
Nor is it only the fast-fashion players that are entering the market. Chanel opened its first store in a mall in India this year, at The Chanakya, in New Delhi and for the first time Hermès had its windows designed by an Indian artist.
There have been a slew of other changes in regulation in recent months that are expected to further spur the industry’s growth. In September, after years of lobbying by global retailers, the Indian government eased the requirement for single brand retailers to source 30 percent of their products from India, bringing it down to 10 percent, provided they export 20 percent of their products to other countries. Meanwhile, a change in the tax structure in July 2017 with the implementation of the goods and service tax (GST) is expected to make doing business easier once the initial hiccups are resolved.
These changes, among others, have helped India move up to 63rd position, up 14 points, out of 190 countries in the World Bank’s ease of doing business 2020 report released recently.
Darshan Mehta, president and ceo of Reliance Brands, a subsidiary of Indian multinational conglomerate Reliance Industries Ltd., believes that the changing regulations — which have been seen as disruptive and causing a huge loss in business — will be”game changers in the long run.”
“There have been a lot of far-reaching legal reforms, people have underestimated these, there are bankruptcy laws, there is RERA [Real Estate Regulation and Development Act], so many old laws have been getting re-hauled. There is always a scare that a dramatically new direction means resetting the bar all over again, but personally, I believe that the GST may have caused some disruptions in the short term, but given a bit of breadth and space it will be one of the most fantastic things to happen for business,” he observed, while affirming that Indian retail “should easily be $1 trillion by 2020 and will firmly be in the top five retail markets in the world.”
Reliance Brands has partnered with more than 45 global brands, including Armani Exchange, Diesel, Burberry and Michael Kors. In July, it completed the acquisition of U.K. toy retailer Hamleys for 67.96 million pounds, a move that is seen as providing a changing retail model for India, one in which Indian retailers stride into global markets.
While the world’s three largest specialty chains have moved into India, it has also been a battleground between two other, bigger retailers: Walmart and Amazon. Walmart bought a 77 percent stake in India’s largest e-commerce company Flipkart for $16 billion in May 2018, while Amazon founder Jeff Bezos pledged to invest $5 billion in Amazon India when it launched in June 2013.
Both companies have been restricted in their expansion plans in the country because FDI in e-commerce remains barred. As a result, they continue to have to follow a marketplace model — although the two groups still account for about 75 percent of India’s e-commerce market.
Flipkart, which is being watched carefully after the investment by Walmart, had revenues of 42.87 billion rupees, or $6 billion, in the financial year ending March 31, growing 42 percent over the previous year’s 30.16 billion rupees, or $4.2 billion.
Walmart also has more than 25 physical stores in India, but these are only allowed to operate in the wholesale sector because of FDI restrictions in the multibrand segment. These rules haven’t deterred the retailer from negotiating hard for a stronger footing in the Indian market. Speaking at Massmerize 2019, a retail conference organized by the Federation of Indian Chambers of Commerce and Industry (FICCI) in October, Krish Iyer, president and ceo of Walmart India, noted that “Indian retail is one of the fastest-growing industries across the globe” and one to note, “as by 2030, India’s top 30 cities would be a $1.5 trillion opportunity.”
While there has been backlash against the entry of Walmart into India — with domestic firms protesting that 90 percent of the country’s retail remains independent mom-and-pop stores and these would suffer — Iyer observed that “the organized sector can also service this traditional trade, so the concept of inclusive retail, in which modern retail continues to grow while leveraging this system could be key.”
One way to do that could be combining e-commerce and physical retail, as is happening in other markets. An FICCI-Deloitte Report launched at the conference noted that e-commerce was expected to grow at an annual rate of 51 percent, reaching $84 billion by 2021 and $200 billion by 2026. “The factors attributed to the growth are economic growth, increasing consumerism and growing disposable income. The growth is expected to be not only witnessed by large cities and metro but also tier two and tier three cities,” the report noted.
Given the slump at retail earlier this year, e-commerce sales during October were watched closely. The first 10 days of the month saw Flipkart’s Big Billion sale and Amazon’s Great Indian Festival, both of which generated estimated total revenues of 19 billion rupees, or $3 billion, according to consulting firm RedSeer. Leading products were smartphone and fashion. Amazon India said smartphone sales were up 15-fold, and fashion rose fivefold.
Other e-commerce players that have seen growth in the fashion segment include Koovs plc, which reported a gross merchandise order value of 5 million pounds, or $6.4 million, in its second quarter, up by 100 percent. The 27.3 million visits to the site were an increase of 69 percent.
Despite the impressive growth, the company was close to collapse. Earlier this week, Koovs was placed into administration following the failure by its largest shareholder, Future Lifestyle Fashions Ltd., part of Future Group, India’s largest retail group, to fulfill a contractual commitment to invest a further 6.8 million pounds, according to the new owner Waheed Alli.
On Tuesday, Alli acquired the business and assets of Koovs from the administrators through a wholly owned vehicle, SGIK 3 Investments Ltd.
“It is always tough building a business, particularly when it is in a new and developing market. I deeply regret this outcome for equity investors as a result of FLFL defaulting on its commitments,” Alli said.
“I strongly believe in the long-term future of this business and was one of its largest shareholders and creditors. I could not stand by and allow all the hard work [that] has been put in to be destroyed, with the loss of jobs and the damage to our suppliers, which would have followed. The action we’ve now taken means that Koovs and its trading subsidiary can continue to operate and that jobs, creditors and customers are protected,” he added.
Regulations have been changing rapidly in the e-commerce segment as well — sometimes in unsteady, and disruptive lurches. A new ruling in December 2018 imposed a limit on how much one vendor can sell on a particular portal, forcing e-commerce companies like Flipkart and Amazon India to change their business models. Both companies are now being accused of predatory pricing by smaller retailers that claim they are being forced out of business.
While the December ruling caused dismay among global players, another major change last August brought cheer, when global brands and retailers became able to launch in India with only e-commerce. Before that they could only introduce e-commerce if they had a brick-and-mortar presence in the country. Given the lack of good retail spaces, and high rents, many brands believe the August ruling will make it easier for them to enter the Indian market.
Other factors also are speeding the retail revolution in India, one of them being simply the benefit of experience.
“Customers want choice, they want brands that have a clear differentiation between them, and global brands bring that kind of differentiation,” observed Kumar Rajagopalan, ceo of the Retailers Association of India (RAI). “So there is the possibility for all the brands. But some have made mistakes, and the mistake has been that they look at India and think that it is one country. But India is like multiple countries — it is like Europe. What sells in the U.K. will not necessarily sell in Germany. In India, each state has its ethos, the consumers change every 100 miles. So retailers have to look at the country and see what are my special points, regional tastes have to be taken care of before you get national supremacy.”
Rajiv Suri, ceo and managing director of department store chain Shoppers Stop, agreed. “You have to understand that it’s not just looking at a city, but more in terms of looking at a catchment. Even within the same city, the catchment changes everything. In Mumbai, for example, you need to have Armani in your store at Juhu, but maybe in the outskirts you need something more masstige, that is really the key. If you’re able to get that translation right, and if you have the technology to get there, you will connect with the customer better,” he said.
Joint ventures and franchises have largely been the norm and continue for brands that see local expertise as key. “We are now with increasing vigor, appetite, courage of conviction launching beautiful new brands, beautiful new stores, customer acquisition, doing unique things for reaching out to the customers, the morphing of off-line commerce, a lot of work on the ground. Surely, but surely, very powerful customer acquisition processes are happening,” Mehta said of Reliance Brands.
Meanwhile, mall space has also been growing fast. India is expected to see more than 10 million square feet of additional retail real estate in 2019 – three times that of 2018, according to real estate services company Jones Lang LaSalle. Investors have poured $1.6 billion into retail real estate development across India in the past four years — a whopping 1,094 percent increase from the four previous years, the company noted.
Yet good retail space remains scarce.
As Dhruv Bogra, country manager Forever New, a Melbourne-based fast-fashion brand, observed, “One of the biggest challenges continues to be the infrastructure. The availability of retail space is a problem. All the brands want to be in a premium retail space, and the pipeline of these malls is just not enough. Zara, H&M, etc., get very good deals as anchors for malls. But it is the medium-sized brands like ours that have to pay higher rentals, and struggle for better locations.”
Bogra, who has worked with global brands including Bestseller Retail and Adidas in India, added that the level of consumer awareness and hunger for brands has gone up substantially, especially as international brands “bring a very high quality of discernment and choice to the Indian market, and there is an evolution in aspiration levels.”
Forever New has 86 stores in Australia, and is in more than 60 doors in India. Bogra sees growth in India as key to the brand’s global growth, expecting a 50 percent jump in sales in the coming year, and is investing 100 million rupees, or $1.41 million, in promotions on social media and influencer marketing initiatives in 2019.
There is also a growing interplay between global retailers and their Indian counterparts, including department store chains Shoppers Stop, Central, Lifestyle and Pantaloons, which partner and stock global brands. India’s homegrown brick-and-mortar retailers meanwhile have been looking at the changing market and adapting fast; store sizes have been honed, as have private label and omnichannel strategies. These have been further helped by the e-commerce giants such as Amazon India, which bought a 5 percent stake in Shoppers Stop in 2017, and 4 percent in the Future Group in August.
Future Group, with estimated revenues of $5.4 billion in the year ending March 31, owns two listed retail entities, Future Retail and Future Lifestyle Fashion (Koovs’ former owner), and has numerous retail formats, including 46 stores of department store chain Central at the more premium end, 263 Big Bazaar in the mass segment, 93 Brand Factory units and 87 stand-alone Fbb (fashion at big bazaar) stores.
For the fiscal year ending March 31, Shoppers Stop had revenues of 34 billion rupees, or $495.9 million, and plans to focus on premiumization with 210 multiformat stores.
Lifestyle International Pvt Ltd. had a revenue of 8.4 billion rupees, or $1.2 billion for the same period, with 80 stores and a plan to expand its off-line footprint by launching one store every 45 days, reaching the 100-store milestone in two years.
Aditya Birla Fashion and Retail had revenues of 81.18 billion rupees, or $1.14 billion for fiscal 2018-19, with multiple store formats, including its leading retail chain Pantaloons, which has 308 stores.
But the biggest player, and the one being watched carefully by both local and global brands, is Reliance Retail, which reported a turnover of 1.3 trillion rupees, or $18.5 billion, last year. It operates more than 10,000 stores with a retail area of more than 23 million square feet. The growth over the last year has been 89 percent, up from revenues of 691.98 billion rupees, or $9.8 billion, the previous year.
Analysts and retailers agree that change is imminent, as is growth; many believe that rather than a single inflection point, retail will continue to see upward growth for the next decade.
Arvind Singhal of Technopak believes that in the next five years when the Indian economy crosses the $5 trillion mark, growing per capita incomes will allow for higher discretionary spend. “The biggest growth in the country is likely to come from mass, from very sharply value priced brands,” he said. “I am also optimistic that there will be a relaxation in the restrictions for global retailers sooner rather than later.”
Bogra spoke for the industry as he noted, “India will continue to be one of the fastest-growing retail markets in the world. The consumer has evolved dramatically in the last 10 years, and that evolution will continue to happen.”