F.D.I.

in Retail Sector

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Agenda
Retailing : An overview Indian retail FDI in Indian retailing Why FDI?

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Retailing : An overview

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Retailing: An overview

Retailing  World’s largest private industry US$ 6.6 trillion sales annually
Indian retailing  Largest employer after agriculture - 8% of population  Highest outlet density in world Around 12 mn outlets  Still evolving as an industry Long way to go
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Ahold. Target. Home Depot. Albertsons’ 5  . Metro. Kmart-Sears. Kroger.Retailing: An overview  Wal-Mart  Topmost global Fortune 500 company(3 Consecutive Years)  Annual Sales of over US$ 250 bn Fortune 100  9 Retailers  Carrefour.

Evolution of Indian retail Historic/Rural Reach Traditional/Pervasiv e Reach Government Supported Modern Formats/ International Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives Convenience Stores Mom and Pop/Kiranas Weekly Markets Village Fairs Melas Source of Entertainment Neighborhood Stores/Convenience Availability/ Low Costs / Distribution Shopping Experience/Efficiency 6 .

 Evasion of taxes  Difficulty in enforcing tax mechanisms  No monitoring of labour laws  collection  Formal Retailing Sector Typically large retailers  Greater enforcement of taxation mechanisms  High level of labour usage monitoring  7 .Evolution of Indian retail  Informal retailing Sector Typically small retailers.

Unorganized Retail – 92% Forced employment sector Retail Scenario in India 14% of National GDP Fragmented Employment to 7% of workforce 8 8 .

Size : $ 400 billion Growth Rate : 13% GDP contribution : 12% Major sector : Food and Grocery Employment : 2nd largest industry (35.06 million) Types: Organized ( 5%) Unorganized ( 95%) 9 .

 Corporates are increasingly coming into this sector  Demand of branded goods on a large scale  Demand of new and varied products  High quality product is preferred  Varied window display  E-tailers increase the presence 10 .

US Taiwan Malays ia Thailand Indones ia C hina India 0 20 40 60 80 100 O rg anis ed Unorg anis e d US Unorganised Organised 15% 85% Taiwan 19% 81% Malaysia 45% 55% Thailand 60% 40% Indonesia 70% 30% China 80% 20% India 92% 8% 11 .

CATEGORIES OF INDIAN RETAIL 12 .

Viveks. Ritu Wear. Reebok. Lilliput  Dedicated brand outlets   Multi-brand outlets   Manufacturers/ Exporters  13 . Health & Glow.Categories of Indian retail  Corporate Houses     Tatas: Tata Trent RPG group: Food World. Sehgal Bro. Bata. Hiranandani (Haiko). Weekender. etc ITC: Wills Life Style Rahejas(Shoppers Stop). etc Vijay Sales. etc. Zodiac. Nike. DLF(DT cinemas). etc.

Classifying Indian retail  Modern Format retailers  Supermarkets (Foodworld)  Hypermarkets (Big Bazaar)  Department Stores (S Stop)  Specialty Chains (Ikea)  Company Owned Company Operated Traditional Format Retailers  Kiranas: Traditional Mom and Pop Stores  Kiosks  Street Markets  Exclusive /Multiple Brand Outlets  14 .

Large Indian retailers  Hypermarket  Big Bazaar . INOX. Pantaloon. Trent  Entertainment  Fame Adlabs. Fun Republic. Piramyd. PVR 15 . Star  Department store  Lifestyle. Shoprite. Giants . Shoppers Stop.

000 sq. feet 16 .000 Sq.000 – 1. feet 1000 sq.000 sq. feet 50. feet Single-category Within Large malls Large in Size. Typical in layout 10. feet 75. feet Category Killers Specialty Stores Shop-in-Shop Supermarket Department Stores Cash and Carry Hypermarkets 8000 sq.00.Organised retail formats in India FORMAT Convenience Stores Discount Stores AVERAGE SIZE 800 sq.000 – 60.

Major Indian Retailers . Small Retail stores Brand Factory The LOFT Levi’s Outlet In and Out 17 .Walmart Departmental stores Supermarkets Shop-in-shop Large layout. Globus Household product as well as food as Apna Bazaar . Big bazaar Bharti . Food integral part of the service Bazaar Shops located in shopping malls Navras ( Big Bazaar) Specialty stores Category killers Discount stores Convenience stores Focus on individual product type Particular segment Branded product at discounted px. Wide merchandise mix Lifestyle .Categories Format Hypermarkets Cash and Carry Description Offering basket of product Bulk-buying requirement Retailers Spencers.

Segmentation Retail Segment Percentage Major Retailers holding in sector 63% 9% 5% 5% 4% Reliance Fresh. Café Brio. 18 . Hometown. Tangent Concept The Mobile Store. Vijay Sales. Shoppers Stop. Textile and Fashion Jewellery Catering services Consumer durable Pharmaceuticals Entertainment Furnishing. utensils Mobile handsets 4% 3% 3% 2% Piramal Group Bowling Co. Globus Tanishq IRCTC Viveks. Food Bazaar Westside. Croma Food and Grocery Clothing.

3 bn Sales: $130 bn Sales: $101 billion Earnings: $12.5 bn France UK Sales: $102.800 worldwide Earnings: $5.9 billion Stores: 6.US Sales: $374.6 billion Germany US Sales: $77.2 billion Stores: 3.258 19 .5 billion Earnings: $1.2 billion Stores: 87.221 Earnings: $4.422 worldwide Earnings: $5.729 worldwide Stores: 2.5 billion Stores: 2.

Raheja Piramyd Trent Vishal group GLOBAL INDIAN • • • • • • Tesco Walmart Metro Carrefour B&Q Target 20 .• • • • • • • • • Pantaloons Reliance Bharti retail RPG Lifestyle K.

D. 21 .I.F.

The commitment of money or capital to purchase financial instruments or assets in order to gain profitable returns. 22 .

Foreign Investment through Foreign Direct Investments Foreign Institutional Investors 23 .Investment done by citizens and government of one country (home country) invest in industries of another country (host country).

24 .WHAT IS FDI? Movement of capital across national frontiers in a manner that grants the investor control over the acquired asset.

WHAT IS FDI?  As per Dictionary of Economics FDI means investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy.  Simply put. 25 .

Automatic Route Government No permission required Approval /License required. 26 .

etc. road. These were : 1. Finance Minister referred to certain criteria for allowing Foreign Direct Investment. building. Manmohan Singh. Infrastructure projects like electricity generation. Projects which would generate employment 27 .What was the Criteria for FDI?  1991-92 : Dr. Establishment of basic industries requiring huge capital and advanced sophisticated technology 2. 3.

FDI Policy Initiatives  1991. 28 .  It was brought under the automatic route in 2006. approval route). Cash and carry/wholesale (under Govt.FDI allowed selectively up to 51% in priority sectors.  1997-FDI allowed up to 100% in sectors like mining. manufacturing.

 FDI limits increased. Delhi and Karnataka.  Procedures further simplified  The top 3 Indian Regions attracting the highest FDI.  Account for nearly 62% of the total FDI.FDI Policy Initiatives  2000-06 FDI allowed up to 100% in specified sectors.  Mumbai. 29 .

May 2010 : 94 proposals were received  57 proposals approved= inflow of USD196 mn under single brand retailing 30 .FDI Policy Initiatives  April 2006 .

31 . A) FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. As per Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities. subject to Press Note 3 (2006 Series) C) FDI is NOT permitted in Multi Brand Retailing in India. FIPB) for retail trade of ‘Single Brand’ products. B) FDI up to 51 % with prior Government approval (i.e.

Single Brand Retailing • 51% • 100% 32 Cash and Carry Model .

 Complications in issuance of licenses like a hypermarket in Mumbai must apply for 29 unique licenses & then when it has to come up with second store it has to apply for same 29 licenses all over again 33 .

*Backward Vertical FDI *Forward Vertical FDI • Resource-Seeking • Market-Seeking • Efficiency-Seeking • Strategic-Asset-Seeking 34 .By Target By Motive • Mergers and Acquisitions • Horizontal FDI • Vertical FDI.

except in:   Private labels  Hi-Tech items/items requiring specialized after sales service  Medical and diagnostic items  Items sourced from the Indian small sector (manufactured with foreign technology) For 2 year test marketing (simultaneous commencement of investment in production facility required) 35 .FDI in Indian retailing Current FDI is not permitted in retail trade sector.

Strategic Licensing Agreements 4. Franchise Agreements 2. Some of entrance routes used by them are: 1. most general players had been operating in the country. Cash And Carry Wholesale Trading 3. Distribution 36 . FDI was not authorised in retailing.Entry Options for Foreign Players prior to FDI Policy Although prior to Jan 24. Manufacturing & Wholly Owned Subsidiaries 5. 2006.

g. Pizza Hut. Mango 37 . FDI is allowed with the approval RBI under FEMA E. Nike. Marks and Spencer. Tommy Hilfiger. Gets royalty in return. Easiest track to enter Indian market In franchising and commission agents’ services. Franchise Agreements  Foreign company gives name and technology to local partner.1.

Metro Cash & Carry Entities established prior to 1997  Allowed to continue with their existing foreign equity components.2. E. Cash & Carry Wholesale Trading 100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers.g.  No FDI restrictions in the retail sector pre-1997  Foodworld  51:49 JV between RPG and Dairy Farm I’nal (it’s leading food retailer in India now)  Mc Donalds  38 .

Ltd. . or enter into shop-in-shop arrangements or distribute the brands to franchisees E.g. SPAR with 39 Radhakrishna Foodlands Pvt. Strategic Licensing Agreements foreign brands give exclusive licences and distribution rights to Indian companies Indian companies sell it through their own stores.3. Mango with Piramyd.

internal distributors. have whollyowned subsidiaries in manufacturing which are treated as Indian companies and are. own outlets.4.g. therefore. allowed to do retail They sell products to Indian consumers by franchising. Manufacturing & Wholly Owned Subsidiaries Bata. Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary. existent Indian retailers. Nike. E. Nike India Private Limited  40 . etc. Reebok. etc. Adidas.

5. Hugo Boss 41 .Distribution  International company sets up local distribution office   Supply products to Indian retailers to sell Also set up franchised outlets for brand  E.g. Swarovski.

Ministry of Commerce circulated a discussion paper on allowing FDI in multi-brand retail. Department of Industrial Policy and Promotion (DIPP). If implemented. 42 . The paper doesn’t suggest any upper limit on FDI in multibrand retail. Carrefour and Tesco) to enter and establish their footprints on the retail landscape of India.On the last count…… In July 2010. it would open the doors for global retail giants (Wal-Mart.

Let the liberalisation be in steps rather than being a leap. 43 .

PRESENT CONDITION OF TRADERS Fringe Benefit Tax LICENCES & PERMITS INDUSTRIAL DISPUTE ACT SHOP & ESTABLISHMENT ACT COSUMER PROTECTION ACT WEIGHT & MEASUREMENT ACT PACKAGING ACT PREVENTION OF FOOD ADULTRATION ACT VAT INEFFICIENT LABOUR PREVENTION OF BLOCK MARKETING ACT ANTI-HOARDING & PROFEELING ACT MONEY LENDING ACT PROVIDENT FUND ACT MINIMUM WAGES ACT ESI ACT GRATUITY ACT BONUS ACT ENTRY TAX FDI in Retail Trade SERVICE TAX Anti Socal Elements OCTROI WATER TAX CENTRAL EXCISE Political Interference PURCHASE TAX POOR MARKET CONDITION SALES TAX POWER PROBLEM INCOME TAX Inspector Raj STAMP DUTY WEALTH TAX HIGH BANK CHARGES PROFESSIONAL TAX Cash Transaction Tax & Quarterly ‘C’ Form New Naka Complex ESSENTIAL COMMODITIES ACT 44 .

Aviation Telecom Infrastructure Information Technology Retail Traders Banking Insurance Pharma Mining Steel Professional Education 45 .

STORE 46 .CONTRACT FARMING COLLECTION OF AGRICALTURE PRODUCTS TO OWN FACTORY TO CUSTOMER TO OWN DEPT.

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