FDI norms brings good news for offline retailers

Traditional brick & mortar stores will get a boost in cash flows and see an improved profitability after the government's recent announcement of FDI guidelines for online marketplaces, says a crisil report.

The government recently permitted 100 per cent foreign direct investment (FDI) in marketplace e-commerce retailing, however, it said that such entities will not directly or indirectly influence the sale price of goods and services and shall maintain a level-playing field.

With these new norms, e-retailers, like Flipkart, Amazon and Snapdeal may now find it difficult to provide lucrative discounts to attract customers as the new guidelines on online marketplaces prohibit such players to influence the prices of goods and services.

"Aggressive discounting by e-marketplaces had hurt the profitability of B&M retailers. Facing what seemed like an existential crisis over the past couple of years, these retailers gamely fought back by reorienting store profiles, increasing private labels, and sharpening focus on Tier II & III cities thereby improving overall operating efficiency," Crisil said a report.

Anuj Sethi, Director, Crisil Ratings, said: "Revenue growth for B&M retailers, especially in the apparel and consumer durables segment, should improve as pricing gradually gravitates towards parity with online marketplaces. This, coupled with expectedly greater pricing power and store productivity, will provide a fillip to profitability."

The report added that a better operating environment will also mean B&M retailers will continue to focus on store additions over the next 2-3 years.

"Crisil expects the pace of store additions to be faster than the 10 per cent of existing space presaged earlier. Further, better cash flows will support the credit profiles of B&M retailers," it said.

Amit Bhave, Director, Crisil Ratings, said: "The e-marketplace sector will undergo gradual transformation in the near term to a more sustainable business model and will focus more on optimising processes (supply chain, warehousing and overall fulfillment) from a deep discounting for customer acquisition strategy."

(Image credits: indiatimes)