The dream of India

Earlier this year, Indian Prime Minister Narendra Modi made some substantial changes to the way the country accepts international retailers.

Firstly, the need for foreign single-brand retailers to receive federal approval was removed, allowing more players to more easily enter the market.

Secondly, a rule that requires businesses to locally source at least 30 per cent of their products was relaxed, allowing this to instead happen over a five-year period.

These alterations have created a far smoother transition for retailers to attempt an expansion into one of the world’s largest and most exciting markets.

The Indian market is attractive to retailers for a number of reasons. Rising incomes have fuelled a growing, digitally enabled middle class, while an underpenetrated market has left the country’s 1.3 billion people underserved.

According to professional service firm KMPG, India has emerged as one of the most attractive retail destinations in the world, with a compound annual growth rate for retail estimated at 13 per cent.

More than half of India’s population falls into the category of “working population” – the largest spender on retail – indicating a large pool of potential customers.

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There is a huge opportunity for the business that gets there first, with Amazon and Walmart both diving into the region through local acquisitions set to create a solid foundation for potential mainline expansions.

Even Apple, potentially the biggest technology company on the planet, has begun to see India as a market worth chasing, adding dual-sim technology into its latest iPhone models in an effort to placate an Indian consumer-base used to this technology.

All-conquering Ikea

It is arguably Ikea, however, which has created the biggest fervor since its launch, with the Swedish furniture company’s Hyderabad store being overloaded to the point that it commanded wait times of at least three hours.

“More than one million customers have visited our store in Hyderabad in less than three months,” Ikea India’s chief executive Peter Betzel tells IRW.

“On average, 20,000 customers walk in… On weekends and holidays, we are seeing 35,000. The response has been amazing.”

As Betzel sees it, Ikea’s expansion into India is a long-term commitment by the retailer. Home furnishings as a category is not fully developed in India, leaving room for new entrants such as Ikea to flourish.

“We believe that it has the potential to grow into one of our biggest markets,” Betzel says.

To this end, Ikea is planning on launching a second store in the financial capital of Mumbai in 2019, followed by a third store in Bengaluru the following year. By 2025, Betzel says, Ikea aims to have opened 25 touchpoints, including big-format stores, smaller
city centre stores, as well as a digital offering.

“We have big dreams for this market and hope to touch 200 million people in 49 Indian cities in the coming years with a multichannel
approach,” Betzel says.

“There is room for many, many players who will together grow the overall home furnishings segment. There is room for everyone.”

Challenges for Gelatissimo

Like Ikea, Gelatissimo is expanding into the Indian market to take advantage of the growing middle class, with its first store to open
within the next four weeks in Hyderabad and a further five to open this calendar year.

“The premium dessert category is still in its infancy in [India], and being one of the first to market will set the brand up well for the
future,” Gelatissimo chief executive Filipe Barbosa tells IRW.

“The growing middle class means that the retail landscape is changing and becoming more accessible to a lot more people.

As access to technology is increasing as well, the majority of the population has access to international brands, and they are embracing companies that are setting up and want to invest in India.”

In order to facilitate this expansion, however, Gelatissimo faced a few challenges in regard to the country’s strict import guidelines and
regulation around labelling.

These regulations required Gelatissimo to relabel all of its products specifically for the Indian market, and to go through the ingredients used in each item to ensure everything complied with the import standards of the Food Safety and Standards Authority
of India.

“There have been a few challenges along the way… But it has been a matter of a lot of prior research and consulting with local authorities to make sure our products comply, so that exporting the first shipment went smoothly,” Barbosa says.

A rethink on goals

Ikea has not been immune to challenges either, with Betzel explaining that higher custom duties on goods have led to higher prices for consumers in India.

“Ikea is about everyday low prices [and] increases in customer’s duties is against the idea of an open global economy,” Betzel says.

“We would like to protect the interest of our many customers and create an even more affordable offer in the future.”

Moving forward, Betzel notes that the retailer is excited and focused on achieving its ambitious targets, and to grow its physical and digital footprint in the region.

However, as PwC notes in its 2014 report The Promise of Indian Retail, 85 per cent of retailers have been unable to meet their original
vision for the Indian market and have subsequently had to rethink their goals.

The report notes that a large number of retailers encountered myriad challenges of execution in an environment where quality of real estate, talent and infrastructure were not keeping pace with the retailer’s expansion plans.

While Prime Minister Modi’s regulatory changes may assist retailers with entering the market, they will still be setting up shop in an ecosystem still in development. However, with a growing, underserved population hungry for new retail experiences, India remains one of the key expansion targets for Western retailers.

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