The recent decision by the Indian government to permit increased Foreign Direct Investment (FDI) in retail was approved in the Lok Sabha, presenting a glimmer of hope for struggling mall owners. The new retail FDI bill is anticipated to alleviate concerns regarding the surplus vacant spaces as foreign entities will now have the opportunity to operate shops in the Indian market.
With the rapid growth in shopping mall developments, a significant excess of retail spaces has emerged in prominent cities across India, most notably in New Delhi and Mumbai. This challenging scenario has forced mall owners to grapple with a high volume of unoccupied retail spaces.
Previously, India permitted foreign firms to acquire ownership of up to 51% in multi-product retail outlets, which include stores selling clothing, electronics, and various home goods. Moreover, single-brand retailers were allowed 100% ownership. This change traditionally required foreign companies to partner with local firms that would hold nearly 49% of the business.
Rajendra Kalkar, a manager with the Mumbai-based real estate group Phoenix Mills Ltd., shared that the new retail FDI initiative will significantly enhance their operations. Phoenix Mills manages a total of four malls in Mumbai and considers this enhanced policy to be a ‘very good’ development.
Similarly, a spokesperson from Emaar MGF Land Ltd., a Delhi-based real estate entity running seven shopping malls throughout India, expressed optimism about the new retail FDI framework, believing it will revitalize the sluggish real estate market.
As per the insights from Mr. Gulam Zia, head of the retail division at Knight Frank India Pvt., he believes that only the malls situated in metropolitan areas will likely benefit from this new retail FDI plan. He cautioned that lower-tier malls might still struggle to attract tenants, leaving many shopping centers perpetually vacant.
The influx of foreign retailers is steadily increasing, with UK-based footwear brand Pavers England securing government sanction to set up wholly owned stores in India as of October. They are now recognized as the first foreign firm to gain such approval. Additionally, the Swedish furniture giant IKEA received government clearance in November to launch its operations in the country.
Reports also indicate that U.S.-based Fossil Inc., a producer of various products ranging from watches to clothing, has submitted its application for government permission. Fossil India’s Managing Director, Vasant Nangia, expressed confidence, stating, “We expect to start our shops up by 2013 in India.”
Real estate analysts often highlight the failure of many malls due to the absence of essential amenities. They point out that shopping malls should ideally offer quality dining options, along with the presence of multiplexes to ensure a steady influx of visitors. Absent these offerings, the retail FDI bill may achieve little. DTZ India’s CEO, Mr. Anshul Jain, emphasized that such factors are crucial in enticing customers back to shopping malls.
In a related development, Starbucks recently inaugurated its first store in India, located in Mumbai through a partnership with Tata Group. Officials revealed that they plan to expand their footprint by opening more stores across the nation, aligning with their growth strategy. While these updates provide a hopeful outlook for retailers, it remains to be seen how soon the effects of the government’s new retail FDI policy will be felt.