New Delhi: It was a case of politics prevailing over policy reforms as far as India's booming retail sector was concerned in the year going by, although that did not deter companies from going ahead and expand their operations. (Agencies)
Just when corporate India thought that the much-awaited opening up of multi-brand retail to FDI would see the light of the day, political compulsions meant that Prime Minister Manmohan Singh had to eat the humble pie.
He had to put his government's plans of allowing 51 percent FDI in multi-brand retail and 100 per cent in single brand on the back burner.
Amid all the drama, the year 2011 saw online retailing make its presence felt with newer players jumping on the bandwagon.
The highlight of the year in the retail sector, estimated to be around USD 450 billion and growing at around 15 percent, was clearly the cabinet's decision to allow 51 percent FDI in multi-brand retail and 100 per cent in single brand retail in November.
The decision was welcomed by both domestic retail players, including Future Group, Reliance Retail, Shoppers Stop and Aditya Birla Retail, and foreign giants such as Walmart, Tesco and Carrefour.
The celebrations, however, did not last for long as in the absence of a political consensus, with UPA ally Trinamool Congress one of the most vociferous opponent, the government was forced to hold back its decision. It, however, gave an assurance to take it up at a later stage.
The tug of war between the government and corporates on one side and the Opposition and small traders on the other, meant that the final word on the issue is far from being said.
"This stance on FDI has left many in modern retail wondering if the government does have the grit and determination to propagate consumption in the country when the world is reeling under recessionary pressure," Retailers Association of India (RAI) CEO Kumar Rajgopalan said.
India currently allows 51 percent FDI in single-brand retail and 100 per cent in cash-and-carry, but does not allow any foreign investment in multi-brand.
Besides the FDI issue, the sector overall saw growth as most retail companies continued to expand their operations by setting up new stores. Most players witnessed healthy sales across the year, particularly during the festive season.
During the first half of the year, most retailers were on an expansion spree.
According to estimates of research firm CB Richard Ellis India, over six million square feet of retail mall space was added across India in the first six months of 2011 alone.
For retailers, business was growing in double digits till Diwali but tapered off later in the year.
"In the initial part of the year, the overall sentiment was positive and even demand from consumers was robust. Had the FDI been cleared, it would have been much better," Ernst and Young Partner and National Leader (Retail and Consumer product Practice) Pinakiranjan Mishra said.
During the year, retailers had to bear the burden of 10.30 per cent service tax on rentals and excise duty of 10 percent on branded garments announced during the Budget.
However, following widespread protests, 50 percent abatement was given on the excise duty, meaning the levy would be on half the cost of a product.
Otherwise, for many organised retailers it was business as usual. Tata Group firm Trent that announced appointment of Philip Auld as its CEO, sought shareholders permission to raise up to Rs 300 crore through the issue of securities for future expansion.
While Aditya Birla Retail said it will invest about Rs 1,500 crore in the next five years to open new stores under 'More' brand, Bharti Retail continued expansion of its 'easyday' stores across the country.
Future Group's Pantaloon Retail India Ltd (PRIL) hived off its consumer electronics products arm 'ezone' into a separate subsidiary. The company planned to raise up to Rs 1,500 crore by issuing equity-linked securities amounting to stake dilution of not more than 15 per cent to pare debt.
The retail major also announced an equal joint venture with the UK-based footwear maker Clarks to set up retail outlets in the country, besides entering premium foods category with a retail chain under 'Food Hall' brand.
PRIL also completed realignment of its business by transferring its value retail formats -- Big Bazaar and Food Bazaar -- to Future Value Retail Ltd (FVRL).
Even troubled players tried to infuse a fresh lease of life in their businesses. While debt-ridden apparel chain Koutons roped in SBI Capital Markets to recast its financial liabilities, Vishal Retail that had sold its operations to TPG and Sriram Capital in 2010, changed its name to 'V2 Retail Ltd' and embarked on a new journey.
In the foods space, big names such as US coffee chain Starbucks and Dunkin' Donuts also fine-tuned their India plans. While the former signed a pact with Tata Group firm sourcing of coffee, the latter appointed Jubilant Foodworks as its master franchisee in the country.
Even the wholesale segment saw heightened activities with Bharti Walmart, the joint venture between US-based Walmart and Bharti Enterprises, opening new stores in the
country. Domestic giant Reliance Retail also launched its first wholesale store in Ahemadabad.
Kishore Biyani-led Future Group announced its foray into rural wholesale business with opening its first 'Aadhaar Wholesale' store in Gujarat.
France's Carrefour, that is building an IT platform in India to enable its customers to shop online, ended the year with two cash-and-carry stores under operation.
German firm Metro Cash & Carry that currently operates around six stores, said it plans to open 8-10 stores in the country every year.
A lot of action was also seen on the online retail space with many new players joining the band wagon. A host of names such as Flipkart, Yebhi and Myntra focused on advertising on
mass media such as TV to get consumer attention.
Many e-tailing companies also got funding from private equity players for expansion. While, Bigshoebazaar divested 20 percent stake for Rs 40 crore to Catamaran Ventures and Nexus Venture Partners, HomeShop18 acquired online books retailer CoinJoos.com for an undisclosed amount.
Similarly Fashionandyou.com raised over Rs 200 crore from a group of private equity firms, including Intel Capital and Sequoia Capital, and Flipkart.com received funding of around Rs 90 crore from its existing investor -- Tiger Global.
The world largest Internet retailer Amazon on the other hand was reported to be in the process of setting up a facility in Andhra Pradesh to develop technologies and solutions for its global e-commerce business. Even Walmart announced a similar venture -- 'WalmartLabs' in Bangalore, with plans to hire up to 100 developers.
The market size of online retail industry in India is likely to touch Rs 7,000 crore by 2015 due to increasing Internet penetration across the country, from Rs 2,000 crore at present, according to industry chamber Assocham.
Buoyed by the government's intentions to fully open the single brand retail sector to foreign firms, global luxury brands, including Salvatore Ferragamo and Jimmy Choo said they would increase their investments in India.
Commenting on the outlook for 2012, Mishra of Ernst and Young said, "The macro view is positive for the coming year. It is just a matter of time that more discussions will happen on FDI before it is cleared."
According to estimates of industry body CII, further opening up of FDI in retail can increase the organised retail market size to USD 260 billion by 2020.
New Delhi: It was a case of politics prevailing over policy reforms as far as India's booming retail sector was concerned in the year going by, although that did not deter companies from going ahead and expand their operations.