US based management consulting firm A.T. Kearney published the 2012 Global Retail Development Index (GRDI) and India has been ousted from 4th position by China. The index ranked 30 of the world’s top developing countries for investment in retail. Brazil was ranked first, followed by Chile, China, Uruguay and India.
The top spot was clinched by Brazil, a country which has been a lucrative host for retail investments from all over the world. The report credits Brazil’s top spot for 2nd year in a row due to the high levels of consumption from a large urban population.
Brazil’s attractiveness as a retail investment destination also stems from the middle class becoming stronger and the report expects the retail industry in Brazil to keep growing. Ranking 2nd on the GRDI, Chile retained its spot from 2011 and some of its strengths as an economy attracting retail investment included a low-risk financial climate and high GDP.
China moved 3 places up to take 3rd rank in the index and the A.T. Kearney report expected a ‘double-digit’ increase in annual retail sales. While the country’s mammoth demand has been acknowledged, the report also notes some hurdles that foreign players have faced, including dealing with regulation and increasing competition from local retailers.
India’s drop from 4th to 5th seems to have been triggered by a lack of organized retail penetration and FDI restrictions. On the brighter side, the report expects strong and ‘accelerated’ retail growth in India. It notes a potential percentage increase of up to 20% in retail markets, boosted by a growing GDP, strong macroeconomic conditions, urbanization and an overall higher demand.
FDI has been the buzz word for India Inc since last year. At the start of 2012, the government approved a 100% FDI in single brand retail with a condition that there must be at least 30% sourcing from local small industries. Even A.T. Kearny couldn’t help but mention the changes in FDI and the subsequent interest foreign companies have shown towards India Inc.
Many fashion brands are speculating an entry into the Indian apparel market, which the report pegged to grow about 10% in the next 5 years. Bharti Wal-Mart stores have already opened doors to Indian shoppers and the world’s largest retailer in collaboration with Sunil Mittal’s Bharti Enterprises Ltd plan to expand its presence. The report has also mentioned how e-tailers including Amazon and eBay have looked at ‘alternative platforms’ to enter into India’s emerging e-commerce industry. IKEA, one of the world’s largest home furnishings company has committed Rs. 10,500 crore of investment.
India Inc is no stranger to FDI and in March this year, FDI inflows peaked at record highs of $8.1 billion from various sectors combined. The UN World Investment Report 2012 also ranked India as the 3rd most preferred economy in the world for FDI. However there is still a cloud of uncertainty over FDI in multi-brand retail as retailers, states and the government mull over its advantages and disadvantages.
The GRDI report also ranked India 6th in its 2012 Retail Talent Index and complimented the nation’s educated talent pool as being an ‘attractive’ lure for foreign retailers to set up base in the country. On a positive note, the report put forward expectation of a spurt in demand for skilled workers and professionals.