LATEST HAPPENINGS

Music Trades featured Top International retailers in their May 2012 issue. It featured European, Australian & Russian retailers and also 2 Indian Retailers of Musical Instruments. One was a Maverick e-tailer BAJAAO& other was India’s leading brick-motor retailer Sara-Trans. In these articles, Music Trades predicted that India (Non Indian entities were restricted to open Multi-Brand Retail shops) will soon open-up its Retail Industry to International Retailers. This prophecy of Music Trade has come true & India has opened up its Multi Brand Retail industry to foreign entities. Global retailers have welcomed this as they have been waiting for coming to India. Now they can explore this opportunity& grow exponentially as India is fast becoming the largest consumer market in the world. Global retailers are formulating plans, strategy to start retail operations in India& to launchretail stores in first half of 2013. Likewise this is an opportunity for Global MI retailers to start their retail operations in India. We have received couple of requests on exploring opportunities for setting up Indian retail operations in the Musical Instruments & Professional Audio industry.

Music Trades has listed India at 23rd position in country rankings as per revenues & at 2nd place in terms of growth (12% after Indonesia). Indian share is estimated at about 1% of the global trade. The above are based on official numbers & disclosures. India has a very prevalent grey market & also customers use other channels to buy. Hence we believe that the actual figures will be twice of the reported numbers. Taking cognizance of this along with a bit of discounting, perspective & prospects of the Indian market change & hold great significance not only for the Brands but for the Retailers to look at India in a different light.

Some known truths of the MI, Pro AudioRetail Industry in India:

  • Indian Music Trade industry has done a super job of developing & cultivating a market here in the past decade. India has changed and is growing at a fast pace. Due to their bottlenecks on economies of scale & lack of support from the Brands, the stakeholders in the industry are not able to ramp up operations as needed in todays times.
  • Indian Retailers don’t sell all brands/products/models. Import of the products is significantly less & retail stores carry limited inventory.
  • Almost 90% of retail operations are run by importers/distributors of the brands & hence only selected brands are present in these shops.
  • 50-60% of MI, Pro-audio brands are not even present in the Indian market.
  • Presently these retail stores are present in not more than 200 locations, which is too less for a big & diverse country as India.
The above has led to the demand more than the official supply. Thus Indian consumers are forced to use alternative channels for purchases. Mostly used channels by Indian consumers are the grey markets prevalent in major Indian metors, import on their own, asks friends & contacts abroad to ship the products or buy from the e-store of Global Retailers.Global retailers offer through their online stores shipping to India. However this form of e-tailing is not allowed as per the present Indian laws as Ecommerce selling to Indians can only be done by 100% Indian entity.
In September 2012, Indian Government passed an act allowing Global Retailers to set up their multi-brand retail operations in India via FDI (Foreign Direct Investment) route. This has now paved way for Global MI Retailers to enter India & set up shops.

Opportunities:

  • Indian market potential: World’s second largest population (over 1.3 billion), average age being 12-25 yrs, Rising disposable income, Increase in standards of living&growing interest in music & entertainment. This ismusic to the ears of Global retailers who are seeing stagnant growth in their markets. The huge market potential of India for a Global MI retailer is the next big thing.Being in India, the retailer can explore the market potential of the entire Indian sub-continent including Burma, Bhutan, Nepal, SriLanka, Bangladesh, Pakistan, others. Already few Indian retailers do supply or have channel partners in these countries.
  • Indian Ml& Pro-Audio Industry:The industry isFragmented &disorganized with handful of players. Most importers & distributors also operate as retailers & have dealers in select locations. Hence a strong brand or loyalty amongst the Indian consumer is non-existing. Global MI retailer can establish its brand as the goodwill from their international operations will only lead to an effective start & building a strong brand in India. At the same time the Global retailer can bring in other ancillary services of rental, music school, artist relations, financing, camps, etc which is almost negligible in India.
  • MI, Pro-Audio Brands: Presently in India only about 30% of the Global brands are imported, distributed & retailed. A Global retailer that enters India with these new brands can immediately makes its presence felt and also provide the existing brands newer channels to sell their products.
  • First mover advantage:The Multi Brand FDI policy has significant deterrents (more on this later) that will only allow or make it possible for only few serious players with deep pockets to open up their India operations. Hence if you fit the bill & can overcome the challenges you stand to gain the BIG 1st mover advantage & gain significant market share in few years.

Challenges:

  • Government Regulations on the minimum investment: The minimum investment required to open retail operations in India via FDI is USD 100 million. This amount is to be invested in period of 3 years in setting up retail shops, backend infrastructure, inventory, manpower, training & promotion. This minimum investment criterion will ensure only few serious players can set up Indian operations. Though the amount seems high its easy to recover as the market size is huge & getting 1 million customers for profits of 100 USD. At the same time, the retailer can use this amount to buy inventory for India operations from its Global Retail operations. Thus you can reduce the burden of carrying inventory by distributing it to India. Hence those retailers who have pockets to invest such amounts will easily overcome this challenge& enjoy the first mover advantage.
  • Selecting the right partner for your operations in India: Though FDI has been allowed in Multi-brand retailing, its with the clause that 49% will be held by an Indian entity. This restrictive clause is actually a boon in disguise as the Foreign retailers can acquire the local expertise & knowledge in form of an Indian partner by giving minority stake of 49% in their Indian entity. There are multiple opportunity from different type ofentities as there are private limited companies, partnership firms, family concerns & even public limited companies wanting to partner with the right Global Retailer for India. You can choose the right type of partner for yourself depending on which type of entity suits you.
  • Government Regulations on local sourcing requirements: One of the other seemingly restrictive clauses of the Multi brand retail policy is a minimum sourcing requirements from local industries. In India there are small-scale industries manufacturing local Indian instruments. These Indian instruments retail in the North America & western countries for more than 1000% margins. Thus being in India will enable you to source these Indian made instrumentsdirectly from manufacturer, which will benefit your Global retail operations of the Indian musical instruments.
  • Regulatory compliance & procedures:India has been infamous for its laws, procedures, compliances, regulatory provisions and red tape. These are errant factors for foreign companies to set up Indian operations. FDI policy in multi brand retail has been the favoriteof the present government and they are encouraging by giving red carpet welcome to the Global Retailers. In the last 3-4 months more than 15 FDI proposals have been cleared. An experience Indian partner along with professional consultants can handle these issues & make your Indian operations happen easy & smooth. Many Global companies, MNCs have engaged them for a quick and effective start of their Indian operations.
  • India holds a great potential & is an untapped market for the MI & Professional audio. India will emerge in the top 10 destinations for MI & pro audio in next 2-3 years. It is also clear that only select Global retailers will be able to seize this Multi Million dollar opportunity. By playing the strategy right & supported with the right Indian partner, If you are here, you will ride the Indian consumption growth story and lead your company to a new & exciting horizon. Borrowing the sound track from the famous movie “Slumdog Millionaire”. Come to India. Jai Ho. Jai Ho!!