India

Key trends and issues

Bullish on the Indian retail sector—Retailer confidence soars: Several global studies indicate that India is the world’s most exciting retail destination. Global retailers and brands recognise that India, alongside other emerging markets, will play a crucial role in their long-term growth and prosperity. As such, most major retailers and brands, if not there already, are embarking upon plans to enter the Indian retail sector. High level trends include:

• Buoyed by economic growth and rising income levels in Asia, retailers' sentiments are correspondingly strong, and retailers now have more aggressive expansion plans.
• In India an overwhelming majority of retailers believe that their turnover will improve.
• Retailers have more ambitious expansion plans than they did just a few years ago. Most retailers plan to expand by increasing store outlets and augmenting product ranges/ services.
• India is identified as the most sought-after market by retailers who are looking to the world’s emerging markets to drive the success of their businesses in the future.
• India is considered particularly attractive because of the size of its market and its low presence of international retailers. With foreign ownership rules being gradually relaxed, foreign investment is also now possible, allowing single-brand retailers to own up to 51 % of their India operations.

Emergence of private labels—Improving profitability: Private labels enhance the profitability levels of product categories, increase retailers’ negotiation powers and create consumer loyalty. More retailers are introducing private labels in all categories, including apparel, accessories, footwear or groceries. Several modern organised retail chains, such as Spinach, Reliance Retail and Future Group are embarking upon major initiatives to create and retail private labels. Categories in which retailers are looking to offer private labels include footwear, bed linen, home furnishings, apparel, food and jewelery. Leading Indian retailers are enhancing their private label offerings in order to capture revenue, drive consumption, appeal to price-conscious consumers, extend brand equity and act as a means of competitive differentiation.

Retail real estate—The space issue: In most Indian cities, it is difficult to find suitable properties in central locations for large format retail stores, primarily due to fragmented private holdings, infrequent auctioning of large government-owned vacant lands and litigation disputes between owners. This absence of readily available land supply, coupled with increasing demand for space from retailers, causes a demand-supply mismatch that is eroding the operational effectiveness of most retailers.

Luxury retailers are also adversely impacted by the demand-supply mismatch. It is imperative for luxury retailers to be selective in choosing the right retail real estate to position their brands. Many luxury retailers who entered the Indian retail sector did so by establishing stores in five-star hotels which may have fewer retail footfalls, but which perhaps ensure walk-ins of more serious buyers of luxury products. Luxury retailers are anticipating the opening of luxury malls, whereby their brands can be positioned alongside other high-end aspirational brands. Other luxury brands are opening outlets in stand-alone heritage homes that have a posh, old-world feel.

Apart from luxury retailers, other international retailers are surprised at the absence of good quality retail real estate in India, given that they have been able to expand operations in dozens of countries outside of their home country. Often, the senior leadership team in the home country simply cannot understand why it would be challenging to locate robust retail real estate in India.

Workforce management issues—Managing people: The retail industry is expected to grow at a CAGR of between 30 to 40% for the next few years. To meet growth, retailers will need to find skilled staff, especially at the senior and middle management levels. While studies differ on the exact number of retail staff that will be needed, all agree that the number is in the millions. Retailers are embarking upon a series of initiatives to create an able and skilled pool of resources, such as partnering with management institutes and developing training programmes that build skills and improve retention rates.

While retail has yet to emerge as the career of choice in a country where many individuals aspire to become doctors, IT professionals and engineers, the sector provides a respectable career path with opportunity for upward mobility and increased pay. Retailers can hire high school graduates and can train them to become floor staff, store managers and so on. The sector can emerge as a major employer for the unemployed and/or non-college graduates in urban and rural India.

India-based conglomerate

Our client, an India-based conglomerate, maintains diversified interests in aviation, liquor and beer. The client, currently the world's second-largest spirit manufacturer, was evaluating a proposal to acquire a Europe-based company to expand operations. The client wanted a trusted advisor with a seamless worldwide network to assist them in this complex acquisition by carrying out financial and tax due diligence and providing negotiation support and advice on alternate structures. The PwC team, based in Bangalore, led this project with support from M&A practitioners in our network offices of London, Birmingham, Glasgow, Edinburgh and New Delhi. Our client successfully completed this complex GBP 600 million acquisition in early 2007.

Europe-based luxury brand

This client is a premier luxury brand based in Europe. The client wanted to enter the Indian market through setting up a joint venture company in India under the Single Brand Retail entry route. The client approached PwC to assist them in establishing operations in India, including assistance in obtaining government approval for allowing 51% FDI in an Indian company which would be engaged in retailing the company’s apparel and fashion accessories. The client also engaged PwC to provide assistance in joint venture negotiation support, including reviewing the various transaction documents and shareholders agreement for the proposed joint venture. PwC was successful in obtaining government approval, permitting the client to set up a 51% joint venture company in India. We also helped the client obtain an approval permitting them to retail products of more than one trademark from a single store, which was one of the first of this type of approval.