Organised retailers' pie to touch 10% by 2020 on new FDI norms

Mumbai, Jan 15 (PTI) The recent government move toallow 100 per cent foreign capital in single-brand retail maypush the market share of organised retail to 10 per cent byfiscal 2020, up from 7 per cent now, says a report.Last week government allowed 100 per cent foreigndirect investment (FDI) in single-brand retail under theautomatic route from 49 per cent earlier, and also relaxed thesourcing norms.According to Crisil, this move alone will push up themarket share by 100 bps as the agency had earlier expected themarket share of organised retailers to grow to about 9 percent by fiscal 2020, based on healthy revenue growth of about18 per cent."Better operating environment for single-brand retailwould also mean the pace of store additions will be fasterthan the annual 10-12 per cent," Crisil said.The impact of relaxation in FDI rules will be morepronounced in apparel, luxury goods, home decor, footwear, andelectronics, which make up about 45 per cent of the organisedretail revenues, Crisil said."Global single-brand retailers facing growth headwindsin their key geographies will now be more than keen to peg atent here," said Anuj Sethi, a senior director at CrisilRatings."And those already present can step up investments.The previous sourcing norms were a bottleneck to scaling up ofoperations," he added.While FDI approvals under the automatic route willlower the time to commence business, the relaxation of 30 percent local sourcing norms for the first five years by allowinginclusion of incremental sourcing for global operations willalso provide sufficient time for new entrants to set up andstabilise their sourcing base, he pointed out.This could mean increase in competition for domesticorganised brick and mortar retailers. However, more foreignretailers vending their ware will also lead to sharper focuson, and improvements in, supply chain efficiencies which willbenefit the sector over the medium-term, he said.Further, the report believes that healthy growth prospects for the sector and benefits of scale and focus on profitability, will help offset the impact of higher capital spending over the medium-term.

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