Will India scuttle potential Rs700 cr investment of Apple stores?

iPad and iPhone maker Apple operates more than 360 company-owned, company-operated (COCO) stores in 12 countries. Of these 360+ COCO stores, almost a third (115 stores) are outside the USA.  The average annual sales per Apple company store in the last 12 months was a whopping $48.4 million (Rs242 crore).  Apple’s retail business employs more than 41,000 people.

Apple’s flagship store on Fifth Avenue in New York City’s Manhattan borough (overlooking Central Park) is open 24 hours a day, 365 days a year, and supposedly did business of $800 million (Rs4,200 crore) in 2011.  That’s more than the total turnover of Lifestlye and Shopper’s Stop put together. This iconic store is the most photographed place in all of New York City — more than Empire State Building, Rockefeller Center or Times Square.

In India, Apple does not have any COCO stores as yet. The company’s products are retailed from 35-odd exclusive Apple stores labeled as Apple Premium Resellers (APR) or from hundreds of multi-brand stores such as Croma, Reliance Digital and Vijay Sales. Apple’s product sales in India are now estimated to be above Rs6,000 crore per annum, including products bought by Indians while traveling abroad. The best performing Apple Premium Reseller stores in India are almost touching sales of Rs30 crore  per annum — reason enough for Apple to consider opening COCO stores, at least in the three major metro markets - Mumbai, Delhi and Bangalore.

If Apple does open COCO stores in India, these are likely to be standalone stores on prominent high streets, as Apple usually likes to make a strong statement with its retail presence. But where? Will either Brihanmumbai Mahanagarpalika, New Delhi Municipal Corporation or Bruhat Bengaluru Mahanagara Palike allow Apple to put up iconic stores on footpaths (we don’t even have any left!) with the main retail area underground? Current municipal bye-laws in these Indian cities do not allow human habitation or commercial business in basement floors.

Apart from the archaic municipal bye-laws, there is another major hitch that may become an unnecessary and unwanted show-stopper. Apple COCO stores typically sell speakers, cameras, bags, sleeves, cases, printers, scanners, storage media, as well as other peripherals and accessories from dozens of third-party brands. Does this make an Apple store a multi-brand store?

If it does, this is really bad news for India, as Indian policy still does not allow foreign direct investment (FDI) in multi-brand retail. This is a pity, as Apple stores are basically single-brand stores but the third-party accessories technically make them a multi-brand retailer. Apple currently invests an average of $38 million per new COCO store globally. If we factor lower costs in India than the global average, the investment per store is unlikely to be below $23 million (or, Rs117 crore) per store.

If Apple were to open COCO stores in India, it would probably set up at least six stores, with a potential investment of $138 million (around Rs700 crore). In the six-year period from February 2006 (since FDI up to 51% in single-brand retail has been allowed) to January 2012, the actual foreign investment inflow in the retail sector has reportedly been less than $45 million. And here is a potential $138 million investment which will get disqualified on unnecessary technical grounds. No wonder China is far ahead of us in attracting foreign investment - not just in manufacturing, but in most sectors of the economy.

The government should have an immediate relook at the foreign investment policy, and define single- brand retailers as those who derive more than two-thirds of their total revenue from a single family of brands owned by the retailer itself. This will allow genuine single-brand retailers such as Apple to open stores in India.

We are proud of our IT industry and give it all kinds of concessions and incentives. Can’t we give it a proper retail environment to buy Macs, iPads and other Apple devices? In fact, can’t we give the fantastic Apple retail experience to hundreds of thousands of Indian youth who love Apple products? Or will Mamata Banerjee stall this potential investment also saying that apples, bananas and oranges can be sold only by pavement-dwelling thelawalas and kirana stores?

The writer is chairman of Asipac, India’s leading mall development managers and retail research consultants, and founder of Men & Boys, Asia’s largest chain of retail stores for men’s skincare and grooming