One Brand, No Waiting In India

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From Standard & Poor's MarketScope





Companies retailing their own consumer brands throughout Asia may find the bejeweled path to nirvana through a new Indian government policy. Shoppers in the fastest-growing emerging market on the subcontinent -- and arguably, the globe -- may soon be checking out popular labels for all types of retail goods at branded stores.



The Indian government opened its retail market to 51% foreign direct investment [FDI] by single-brand stores last week. The widely anticipated move, albeit only a partial allowance for FDI, places companies that sell multiple goods under one brand in the express lane, enabling them to participate in India's retail industry, which has annual sales estimated between $200 billion and $280 billion.



EARLY BIRDS. This most recent economic liberalization is good news for many of the world's marketers of top labels, who currently sell their goods through the country's handful of homegrown, domestically owned and operated retailers. Potentially, any single-branded consumer product -- from apparel and shoes to mobile phones and cameras -- would be permitted to put up money for a majority stake in retail shops selling one brand.



Companies already operating or licensing retail stores in Asia would most likely to benefit first. The foremost single-brand consumer products companies, according to S&P, are Coach (COH; S&P investment ranking 5 STARS, strong buy; recent price, $35), Liz Claiborne (LIZ; 4 STARS, buy; $35), Walt Disney (DIS; 4 STARS; $25), Polo Ralph Lauren (RL; 4 STARS; $56), Nike (NKE; 4 STARS; $81), Playboy Enterprises (PLA; 4 STARS; $14), and Build-A-Bear Workshop (BBW; 4 STARS; $31).



In S&P's opinion, these 4- and 5-STARS-ranked companies are best positioned to operate or license stores that sell their own products since they already operate such outlets elsewhere in Asia, for example China. According to Boston Consulting Group, India is second only to China as a new growth market for private banking, which demonstrates the swelling number of wealthy households with disposable income that can afford brands from the West.



DAVOS SURPRISE. Even general merchandisers or department stores may stand to gain, because they can invest through institutions. The "51% rule" does not prevent institutional investors from acquiring a stake in any Indian retail company. Foreign institutional investors [FIIs] such as mutual funds or pension funds can invest 100% in India's retail sector. [According to an Associated Press report, Wal-Mart (WMT) applied to the government of India on Feb. 2 to open an office to explore a possible entry into the retail market there.]



The timing of the policy change came just one day before Indian Commerce Minister Kamal Nath, along with other worldwide government leaders and global business heads, descended upon Davos, Switzerland, to discuss, among many things, the emergence of India as a destination for investment.



It's no mystery why retailers are setting their sights on the subcontinent. In December, a panel of Indian economists was unanimous in its projection that India's gross domestic product will continue to grow by about 7% annually through 2010.



"India demonstrated explosive growth in 2005. It's one of the fastest-growing economies in the world," says Srikant Dash, a strategist with Standard & Poor's. "It's a very exciting time for the Indian consumer. They now have a growing array of choices at retail and have a lot of spending power, which is the result of entrepreneurship that has been unleashed." And a growing number of global retailers stand ready to help Indian consumers decide what to do with that newfound wealth.