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Ashish K Tiwari, DNA (Daily News & Analysis)

Mumbai, 4 November 2015

Adidas 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 destination stores.

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 2020.

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.)