MBOs: Gateway to Indian retail

The trends in 2012 suggest that even after FDI permitted up to 100 per cent, brands are adopting the MBO route to enter India
MBO: Gateway to India for foreign retailers

Even after the notification of FDI in the country, brands are finding an entry through the multi brand outlets, MBOs. What is that restrains them from making use of 100 per cent FDI in retail and coming through exclusive brand outlets. Last week English Cricketer Kevin Pietersen, launched his casual footwear brand Pluggers through Planet Sports. The brand will be distributed across the country through Planet Sports sharing the retail space with other footwear brands.  German brand Llyod entered India along with Tata International; and like other foreign brands, they decided to make the brand available through MBOs and prominent footwear retail chains

MBO seems to be the simple first step to mark a presence in the Indian retail industry. A lot of brands have been eyeing to expand their business into the Indian market. But EBOs are a risky business. At least the number of proposals for single brand outlets lying with the ministry speaks a lot about the current situation.

It’s been one year since FDI in single brand retail has been allowed but since then till date only nine proposals have reached FIPB office. Last month three international companies – Italy’s Officina Farmaceutica Italiana, Thailand’s Lotus Arts de Vivre and French Decathlon Sports have approached FIPB with their proposals.

Since January 2012 when the government notified 100 per cent FDI in single brand retail up from 51 per cent earlier, nine proposals have come in. Of these, Swedish furniture major IKEA. UK-based footwear company Pavers and US’s fashion brand Fossil sought to come on their own with 100 per cent FDI. While Pavers’ application was cleared by the FIPB

This number is nothing if compared to the number of brands coming via the MBO route. According to resources there is one brand entering India every third day.

Clarks was initially available through MBOs and store-in-stores; the brand has since revised its strategy, and except for Loft, a pair of Clarks is now sold only through its exclusive brand outlets. Aldo has also been following a similar strategy. M.A.C. and Shopper’s Stop Ltd. entered into a non exclusive retail agreement with cosmetics major Estee Lauder to open up M.A.C. Cosmetics stores in India. M.A.C. Makeup-Art Cosmetics - the professional brand of choice, is the first brand under the Estee lauder Group of Companies portfolio to enter the Indian retail market. Currently there are 20 M.A.C. stores operating.

Nuance Group with Shoppers Stop makes an entry into airport retailing. The alliance is marked with a joint venture with The Nuance Group AG of Switzerland, the world’s leading airport retailer. Shopper's Stop Ltd. is handling the retail operations at the duty free zones in international terminals. The joint venture company, called Nuance Group (India) Private Limited. is operating outlets at the International airports at Bengaluru and Hyderabad.

Apart from these, Perfume brands, Watch brands and Footwear brands are the most common ones choosing the MBO route.

Tracking the reasons

IKEA’s proposal has been pending with the government for months now. This simply gives a statement about the pace at which the file operations are done here. Indian retail is anyways a lucrative yet complicated business. Rocketing real estate prices, competition, break even time and not so easy availability of skilled staff is something any brand has to face before it becomes a success in the Indian market.

Amidst all this, MBO route is one way where any brand can start its operations. They can make their presence felt in any of the high streets or malls. The products can get the exposure in these MBO’w where the footfall is considerably higher than in any EBOs. That counts as the first step of marketing campaign. After making a consumer base and understand the nuances of retail in India, one can apply for single brand outlet, follow up with marketing research operations and eventually can bring in the brand with the identity of its own stores.

As of now, most of the brands seem to be adopting this method and if none, multi brand outlets are enjoying it to the fullest. 

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