Global luxury retailers are again scouting for new Indian partners as existing tie-ups fail to meet their expectations in the sub-continent.
Two marquee international brands — Giorgio Armani and Ferragamo — that have joint ventures with leading realty player DLF group’s subsidiary, DLF Brands, have been talking to other corporate groups and investors to scope out the potential of changing their Indian partner, said top industry sources.
Another top notch luxury brand, which has already parted ways with its joint venture partner and recently tied up with a silent partner in Mumbai, is facing some “dissonance” in its existing arrangement, they added. A questionnaire sent to DLF seeking its response to the latest development went unanswered.
The foreign direct investment (FDI) regulations in the country permit 51 per cent investment in single-brand retail. This restriction has forced global luxury retailers to either enter into joint ventures with local companies or forge tie-ups with a group of Indian investors. Several global retailers, however, push for alliances of short durations with call options as they anticipate that the government will eventually allow 100 per cent foreign investment in single-brand retail.
The government has already indicated that it is seriously mulling the option of allowing foreign players into the area of multi-brand retail which will allow global retail giants such as WalMart of the US and Tesco of the UK to enter India. Single-brand retailers are hoping that the investment restrictions on them will also be relaxed.
“As the market evolves and so do partners. This trend is to be expected. Ten years ago very few Indian investors understood luxury and there has been a steep learning curve for the industry. It is natural that global brands will look around for entities who believe in the brand,” said Saloni Nangia, senior vice-president (retail) of research firm KSA Technopak.
Over the last five years, several leading luxury brands have already parted ways with the partner they chose to come to India with and have formed new alliances. Several have changed partners more than twice.
The best known example of a break-up between a global brand and an Indian partner was between the poster boy of luxury in India, the Murjanis, and Jimmy Choo and Bottega Veneta. Both the brands dumped the Murjanis for Genesis Colors. There are several other examples of luxury retailers changing partners. Ermenegildo Zegna, one of the first luxury brands to set up shop in the sub-continent, has now tied up with Mukesh Ambani’s Reliance Brands, while Paul Smith chose to ally with Genesis Colors.
Even Genesis, which has several well-known luxury brands in its portfolio, was dumped by German luxury brand Aigner last year.
It is early to predict how these new partnerships will fare but like global brands, Indian entrepreneurs have also become savvier.
“The luxury brand owners are fast realising that given the size and complexity of the Indian market, the standard template of a relationship that is short term and one sided in favour of the brand owner, will not woo the deep pocketed and strategic Indian partners. The size of the prize calls for a rework of their mindset to a long term and win-win partnership model,” said Reliance Brand’s president and CEO Darshan Mehta.
The company has joint ventures with brands such as Zegna, Diesel and Paul & Shark.
Mehta claims Reliance Brands is being approached by a new fashion house or luxury goods retailer practically every other day.
That may be true but it does point to the enormous interest the Indian market holds for global retailers. Selling high-value luxury products in India presents several problems starting with the acute shortage of high quality real estate to house retail outlets, high customs duties that push up retail prices and the buying habits of the Indian consumer who is terribly value-conscious.
“Notwithstanding the near term complexities and challenges of the Indian luxury market, the unarguable potential of having anywhere from 60 to 80 million consumers buying luxury products as a matter of routine, by the turn of the current decade, makes India very difficult to ignore or walk away from,” added Mehta.
Source : The Telegraph