K Tiwari, DNA (Daily News & Analysis)
4 November 2015
Group, the German sports footwear, hardware and apparel maker,
is gearing up to launch its own retail format stores in India
now that it has been allowed by the Indian government to invest
in single brand retail outlets.
While specific timelines were not shared, a senior company executive
said the first store could get operational any time in the second
half of 2016.
The Adidas management has been aggressively pursuing the 100%
foreign direct investment (FDI) option under Single Brand Retail
Trade (SBRT) for a while now. An application for this was submitted
to the Department of Industrial Policy and Promotion (DIPP) in
July 2015. While the top Adidas official confirmed receiving government's
approval, he did not quantify the extent of investment that could
come in to the country for setting up own retail stores.
Dave Thomas, managing director, Adidas Group India, said the
company has been given go-ahead to introduce own retail format
stores in India.
"We strongly believe own retail will enable us to take our
market leadership position to an even higher level. It will give
us additional flexibility to bring in global concepts across all
categories in larger stores, thereby enabling us to further enhance
the premium experience for our consumers," he said, adding
that the management is working towards introducing the first own
Adidas retail store sometime in second half of next year.
The large format destination stores typically occupy anywhere
between 3,000 sq ft to 5,000 sq ft of retail space and are generally
located in high footfall locations including high streets. Taking
into consideration costs associated with running such stores,
retail experts estimate Adidas to invest between Rs 1 crore to
Rs 1.5 crore for each store. "Based on this calculation,
Adidas could be investing Rs 50-100 crore for setting up 50 to
100 large format stores," said a retail consultant, adding
that the company could also take over strategically located stores
already in the franchise network to rebrand and operate them as
The footwear company has been primarily operating in the Indian
market through a network of 760 franchise retail stores (across
Adidas, Adidas Originals and Reebok). While continuing to expand
the franchise distribution network, the company will simultaneously
work on strengthening the presence with large format stores under
the Adidas brand.
"We are confident that the own retail channel plus e-commerce
channel complemented by our franchise network will drive growth
for our brands and our business in India," said Thomas, adding
that the total count will be taken up to 1,000 retail stores by
Devangshu Dutta, chief executive, Third Eyesight, a retail
consulting firm, said the brand (Adidas) has been in the Indian
market for almost two decades now and has seen the ups and downs
while continuing to grow and become a leading player. "The
decision to bring in FDI is a clear indication of their seriousness
and commitment to the Indian market. While their retail footprint
is entirely based on the franchise model, with government clearing
their 100% FDI proposal now they can have better control on the
market/operations," said Dutta, adding that the company will
also work on offering customers a wider assortment of products
including the premium and super premium footwear.
FDI in single brand retail trade has been a heavily discussed
topic over the last couple of years especially the mandatory requirement
of 30% local sourcing which did not go well with the international
retailing fraternity. In fact, according to industry experts the
30% local sourcing criteria has been a major hurdle for international
brands to look at the 100% foreign direct investment (FDI) option
for single brand retail trade in India.
"The local sourcing mandatory requirement has proved to
be a huge bottleneck and that's one key reason for international
brands shying away from investing in the Indian retail industry.
However, in July 2015, the Indian Government clarified its stand
that foreign retailers can undertake single brand retail trading
in India through one or more wholly owned subsidiaries or joint
ventures in India. This came as a huge relief to many international
brands intending to expand," said Shweta Dwivedi, senior
associate, Khaitan & Co.
What is seen as an important development post government nod
to Adidas is that so far the FDI policy was not clear whether
foreign retailers can have retail entities and franchise arrangements
in parallel in India. "Reports indicate that Adidas has received
approval for 100% FDI to operate retail outlets in India, and
may be allowed to operate through franchise as well as retail
entity route in India. If this be the case, I think this development
will also motivate a lot of other international players who have
been sitting on the fence to take the plunge and bring in FDI
for their respective operations in India," said Dwivedi.
With approval for 100% FDI in retail already in hand, the Adidas
management's primary focus in India will be to grow profitably
and consolidate leadership position with an increased focus on
the premium segment of the market. "With Adidas Originals,
we are moving into the fashion and lifestyle domain, while with
Adidas we will continue to look at dominating running, training
and football categories. Reebok will continue to focus on the
growing base of 'fit gen' consumers," said Thomas.
The company will also work on augmenting the omni-channel retail
approach wherein it has equipped around 150 stores with tablets
that can be used to buy our products online, which are then delivered
to the consumers' homes. "We will increase the number of
stores covered under omni-channel retailing to 200 by the end
of this year and to 400 by April 2016," said Thomas.
(Published in DNA.)