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So can single brands be far behind?

business Updated: Nov 25, 2011 22:54 IST
HT Correspondent
HT Correspondent
Hindustan Times

The union cabinet’s decision to allow upto 100% foreign direct investment (FDI) in single brand retail will pave the way for marquee retailers such as furnishing giant Ikea and sports goods retailers to set up exclusive outlets in India, managed and owned entirely by them.

In the last five years, under the current regime of 51% FDI in single brand retail, foreign direct investment of only $44.45 million (R231 crore) come into India — barely 0.03% of total FDI inflows.

Globally, single brand retail follows a business model of 100% ownership. Global majors have been reluctant to establish their presence in India’s restrictive policy environment. "The current cap of 51% confers a right to pass all ordinary resolutions, while enhancing cap to 100% will confer full ownership and control," commerce and industry minister Anand Sharma said.

Global single brand retailers, who felt the franchise-driven model was constraining their expansion plans, welcomed the UPA government’s decision.

“Given the restrictions on foreign direct investment in retail, Reebok has opted for a franchise model in India. At Reebok we are yet to study the implications of these guidelines and will comment on it soon,” said Sajid Shamim, brand director, Reebok, at Adidas Group on FDI in retail.

Last year, Swedish home furniture giant Ikea had pitched for opening up India’ retail sector to FDI.

The furnishings chain, which sources $655 million (about Rs 3,380 crore) in textiles and other goods from India annually, could open its sprawling stores in India soon.