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100% FDI in single brand retail to make market share of organised retail grow by 10% : Crisil

By Satarupa Chakraborty | January 17, 2018

The rating agency anticipates the market share of organized retail to grow by 10% by 2020 along with forecasting healthy revenue growth and better operating environment for brick-and-mortar retailers. The report indicates better performance by segments like apparel, luxury goods, home decor, footwear, and electronics.

Rating, research, policy and advisory agency CRISIL, in one of its recent report, has anticipated the market share of organized retail in India to grow by10% by fiscal 2020, compared to 7% last fiscal. This will be supported by the government’s decision to permit 100% foreign direct investment (FDI) in single-brand retail under the automatic route from 49% earlier, relaxation in sourcing norms, and healthy growth prospects for organized retail.

Before the change in rules, CRISIL had expected the market share of organised retailers to grow by 9% by fiscal 2020, based on healthy revenue growth of 18% of organized brick and mortar (B&M) retailers. Better operating environment for single-brand retail would also mean the pace of store additions by organized retailers will be faster than the annual 10%-12% CRISIL had presaged earlier. According to the report, the impact of relaxation in rules would be more pronounced in the apparel, luxury goods, home decor, footwear, and electronics segments, that are expected to occupy 45% of India’s organized retail revenues.

Anuj Sethi, Senior Director, CRISIL Ratings. Said, “Global single-brand retailers facing growth headwinds in their key geographies will now be more than keen to peg tent in India and those already present could step up investments. The previous sourcing norms were a bottleneck to scaling-up of operations.”

While FDI approval under the automatic route will lower the time to commence business, the relaxation of 30% local sourcing norms for the first five years by allowing inclusion of incremental sourcing for global operations will provide sufficient time for new entrants to set up and stabilize their sourcing base.

Amit Bhave, Director, CRISIL Ratings, further explained, “All this will mean increase in competition for domestic organized B&M retailers. However, more foreign retailers vending their ware would also lead to sharper focus on, and improvements in, supply chain efficiencies which will benefit the sector over the medium term.”

CRISIL believes healthy growth prospects for the sector and benefits of scale and focus on profitability, will help offset the impact of higher capital spending and increasing competition on credit profiles over the medium term. Hence, improvement in the credit quality of CRISIL rated B&M retailers is likely to sustain.

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