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FDI in Multi-Brand Retail Sector Still in Question

Submitted by on Friday, 24 December 2010No Comment

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The debate over whether to relax FDI norms in the Indian retail sector gained momentum in 2010, a year which also saw many retailers resume their expansion activities after the global downturn of 2008-09. The key question in front of India’s $435 billion retail sector was whether the multi-brand retail sector should be opened up to foreign direct investment and if so, to what extent?

The year saw the government take up the issue with all seriousness when the Department of Industrial Policy and Promotion (DIPP) came out with a discussion paper seeking the opinions of all stakeholders. Later on, the government formed an inter-ministerial panel to pursue the matter further and is understood to have completed the consultation process with all stakeholders.

While the discussions were going on, the sector saw the return of good times, recovering from two years of slowdown. An upsurge in consumer demand helped stabilise the sector, especially in modern retail, which found its feet. Having learnt lessons from the slowdown, a significant realignment of business helped most retailers register double-digit growth rates in 2010, which helped in acceleration of store additions. In the previous year, most retailers saw low single-digit growth.

“2010 has been a comeback year for the retail sector, especially during the festive season. Retailers saw healthy sales as compared to earlier years. Consumers are coming back to the stores and feel secure while spending money,” Future Group Chairman Kishore Biyani said. At the same time, the traditional retail sector saw a growth of about 7-10 per cent in 2010 as per various industry estimates.

“Same store growth for most retailers has been in the range of 15-20 per cent. Big retailers have done really well after realigning their businesses in the last two years,” Ernst & Young partner for retail and consumer product service Pinakiranjan Mishra said.

Companies, including Reliance Retail , Shoppers Stop, Hypercity, RPG Enterprises’ Spencer’s Retail, Bharti Retail , Aditya Birla Retail, Marks and Spencer Reliance India, Bharti Walmart and Pantaloon Retail opened new stores across India and drew up aggressive expansion plans on the back of good growth in sales. “Retailers have plans to expand their retail space by 50-80 per cent over the coming 24 months,” according to a report by brokerage firm Motilal Oswal.

It was, however, not song and dance all the way for the sector. Some big names bit the dust during the year, reinforcing the fact that running a retail chain is not everybody’s cup of tea. Beleaguered Vishal Retail was forced to sell its business to Chennai-based business conglomorate Shriram Group and private equity fund Texas Pacific Group for Rs 100 crore, subject to clearance from the Delhi High Court. Indiabulls, which had entered the retail sector in 2007 through the acquisition of Piramyd Retail, later closed many stores during the downturn and froze expansions after finding that even after rebranding its stores as ‘Happy Store’, happiness was hard to come by

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