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India’s Gold Rush

They are calling it a Gold Rush – the flood of international brands targeting India following last year’s relaxation of foreign investment laws.

In September 2012, the Indian government moved to allow foreign supermarket chains to take up to 51 per cent stake in local ventures, single brand retailers a full 100 per cent (subject to conditions) and foreign airlines up to 49 per cent in domestic carriers.

Last month, Indian Finance Minister P Chidambaram assured the markets of yearly economic growth of eight per cent – and ruled out the possibility of an early election, giving some stability to the naton’s economic agenda.

Whether the finance minister’s statement will do anything to encourage international retail brands to increasingly invest in India is yet to be seen.

The fact is that multinational retail brands seem to be rushing to gain entry into the Indian market, with Prowl Germany UG amongst the latest in a long line of entrants. This multi-brand, baby products retailer intends to invest over US$120 million in India over the forthcoming four to five years.

Apart from the changes in government policy towards foreign direct investment in India, one of the major reasons why international retail brands are wooing India is that the nation is pegged to be the fastest growing free market economy by 2015. According to the economists at Morgan Stanley, India is likely to take over from China with increased infrastructure investment and a stronger workforce by 2015.1

According to India Brand Equity Foundation (IBEF), India’s retail sector is evolving at a rapid pace, with unprecedented consumer spending and an increasing number of multinationals investing in the sector. Organised retail in the country is also seeing a sea change and IBEF expects this segment to catch up to global standards within a span of five years.2

In a recent research report, PricewaterhouseCoopers (PwC) reiterated this sentiment, adding that the retail sector in India is worth US$350 billion and is growing at a CAGR of 15 to 20 per cent.3

According to PwC, the major drivers that make India such a dynamic destination for international retail brands are:

  • The large market size
  • Low penetration of organised retail
  • Strong GDP growth
  • Rising personal incomes
  • The huge base of aspirational consumers, including the large middle class, young Indians and the rural population.

In fact, the whole perception of shopping in India has changed from being a needs-based activity that only focused on buying the essentials to shopping for non-essentials and luxury items. This can only mean good news for retail investment.

Both business and consumer confidence are on the rise, with the capital markets witnessing buoyancy. So, there are actually two primary drivers of foreign investment in the retail sector:

  1. India’s economic growth.
  2. The nation’s demographic profile.

India’s middle class in India accounts for over 75 million households, which equates to about 300 million people. Then there are 500 million Indians under the age of 25 who are brand conscious and tech savvy and are looking to acquire the latest the market has to offer them – from mobile phones to fashion and accessories.

Add to this the 700 million strong population that lives in rural India and the market presents an excellent opportunity for retail companies. Penetration levels are still low for various types of products, including personal care, skin care, hair care, electronics and consumer durables.

The bottom line is that India is all set to grow as are its citizens, presenting a unique opportunity for international retail brands to make the most of this growth.

Retail education is also on the move in India as the rapid growth in organised retail activity and the arrival of the international retail brands create unprecedented demand for skills in retail management.

Both local and international retailers have recognised the value and necessity of having managers’ skill ready and qualified to deliver retail success. This is the time to join the “gold rush” in the retail movement with some of the leading retail management courses available in the country.

*InsideRetail.Asia columnist Darrell Wisbey has 30 years retail experience, living and working in Australia and Asia. Email Darrell.

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