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Single-brand stores may shift to fee-based deals

December 06, 2011 10:26 IST

International single-brand retail companies are likely to shift to a new fee-based local partnership format in India from the present equity-sharing model, once the revised policy on foreign direct investment in this segment takes effect.

The Union cabinet had on November 24 raised the permitted FDI level in single-brand retail to 100 per cent, from 51 per cent now. The policy has not been notified yet.

The franchisee model will continue in single-brand retail as local partnership is crucial, but in a different way, said experts.

Tony Fitzpatrick, managing partner, Franchise Your Business, an international consultancy, said a foreign company needed a lot of research to enter a new country. "In that sense, you need local partnership," he said.

But, instead of giving the Indian company any equity, foreign retailers are looking at an advisory fee-based model. That is, foreign retailers will pay their Indian franchisee partners a pre-determined fee for the advisory role they play in setting up the business and carrying it forward, according to Fitzpatrick.

He said the 51 per cent FDI cap in single-brand retail was a deterrent for foreign brands, as international chains want full control over their business.

Gaurav Marya,

president, Franchise India, a prominent organisation for promoting branding and franchising, agreed that local partnerships were significant while setting up shop in a new country, especially in India.

"The franchisee model will continue in India in single-brand retail," he said. Local partnership offers better efficiency to international chains, he said. International chains were willing to make the entire investment, but sought efficient Indian franchisees.

Allessandro Fichera, senior partner, Octagona, an Indo-Italian consultancy in the retail segment, said: "It's a growing opportunity for foreign brands in India, now that 100 per cent FDI has been allowed by the Cabinet in this segment." He, too, favoured the fee-based franchisee model in the single-brand retail category.

Pankaj Renjhen, managing director, retail services, Jones Lang LaSalle, an international real estate consultancy firm, said the top names in single-brand retail may choose to come on their own to India. However, a large number of brands were likely to come through partners and franchisees, who would not hold any equity in the venture.

Among the international single-brand outlets in India are Zara, Marks & Spencer, Louis Vuitton, Christian Dior, Jimmy Choo, Bottega Veneta and Canali. They have entered through joint ventures with Indian partners or franchisees.

Nivedita Mookerji in New Delhi