However, as the 2011 'Global Powers of Retailing' report from Deloitte Touche Tohmatsu (DTTL) reveals, though pursuing growth in emerging markets will never be easy, many more retailers are now ready to take the plunge.
In urban India modern retailing now accounts for approximately 15% of retail sales and is likely to rise over an estimated 20% in the coming 5 years. India so far remains closed for global retailers since the current policy prohibits Foreign Direct Investment (FDI) in multi-brand retail. Although up to 100% FDI is permitted in the cash and carry sector, wholesale trade and up to 51% FDI is permitted in single brand retail.
“While there are signs that the Indian retail sector may open up to FDI in multi-brand retail in the next few years, global retailers should be prepared to make significant investments for the long-term, particularly in upgrading the back end infrastructure and supply chain and in helping to convince local suppliers and vendors that they are here to stay and build a following among consumers", said Rajan Divekar, Senior Director, Deloitte in India.
Divekar further adder, “The experiences of some global players already in India have taught the industry valuable lessons, most notably that it is not sufficient simply to enter a promising market; there has to be a cohesive and holistic strategy given the diversity in Indian shoppers and their unique shopping habits. It is also important that global retailers make the most of local knowledge; understanding local tastes and culture, using mostly local managerial talent, and developing local relationships with vendors, suppliers and service providers."
The efforts of many global retail companies to cut costs and adjust their inventory levels have paid off, with net profit across the top 250 global retailers increasing from 2.4 percent in 2008 to 3.1 percent in fiscal year 2009 (encompasses June 2009 through June 2010).
Global retailers are thus again looking at investing beyond their home markets as indicated by the fact that the global retail sector saw 38 retailers begin operations in a new country for the first time, with a combined total of 57 new market entries involving 42 countries.
India's place on this list will depend on the FDI liberalisation in the Indian retail sector, and the developments in this regard are being keenly tracked by many of the large global retailers.