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Vandana, \n The Week<\/i><\/p>\n Vandana, \n The Week<\/i><\/p>\n
September \n 18, 2012<\/i><\/p>\n
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There \n was a time when the Murjani Group was synonymous with luxury retail \n in India. It offered Indians a taste of luxury by bringing in \n iconic brands such as Gucci, Jimmy Choo, Bottega Veneta and La \n Perla. However, the “luxury powerhouse” exited all its \n joint ventures in just about two years, and has now moved to premium \n lifestyle brands.<\/p>\n
What went wrong? “Imbalance between franchisers and franchisees \n is one of the biggest challenges for luxury retail in India,” \n says Mohan Murjani, the group’s chairman. Experts note that though \n margins are quite high in luxury business, Indian partners often \n get only a small share.<\/p>\n
The Indian luxury market is going through a shake-up. Even as \n the country went full throttle in projecting itself as the most \n happening destination for luxury sales, recent developments seem \n contradictory. <\/p>\n
About one-third of 150 international fashion brands launched \n in India since 2006 have either changed partners or exited the \n market. Twenty-six brands changed partners, and as many brands \n exited the market, says consumer goods and retail consultancy \n Third Eyesight.<\/b><\/p>\n
Take the case of Alfred Dunhill. The British luxury menswear \n and accessories brand is winding up its India operations. It has \n already shut its stores in Delhi, Mumbai and Bangalore. Dunhill \n was partnering Brandhouse Retails, which also deals with global \n brands such as Reid & Taylor, Belmonte and Carmichael House.
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Analysts say the disconnect between partners is one of the major \n reasons for ‘separations’. Deals fall apart when one fails to \n meet the other’s expectations. In the case of Dunhill, S. Kumars, \n which owns Brandhouse Retails, apparently did not have sufficient \n experience to market a luxury brand. Most brands in its portfolio \n are, at best, premium.<\/p>\n
“Luxury is a high-gestation business. You need to wait for \n eight to ten years to reap the returns. S. Kumars might not have \n wanted to wait for that long,” says an investment banker \n who has worked on deals with the brand.<\/p>\n
Also, store expansion of luxury brands happens at a slow pace. \n For instance, in the past four years, Dunhill opened just three \n stores in India.<\/p>\n
“Basically, there is a very different thought process needed \n to market luxury,” says Neelesh Hundekari, principal at consultancy \n firm A.T. Kearney. “The luxury market in India is still at \n a very nascent stage. Consumers in India are still evolving and \n we have not even completed a cycle.”<\/p>\n
While Dunhill chose to quit India, several other luxury brands \n have been breaking away from partners and realigning their India \n operations. DLF Brands, the retail vertical of India’s largest \n real estate developer, recently parted ways with Italian luxury \n major Giorgio Armani. It has also put on hold its expansion drive \n with Salvatore Ferragamo.<\/p>\n
DLF Brands started off in 2008 with huge plans. It even started \n a dedicated luxury shopping destination, Emporio Mall, in Delhi. \n But it could not maintain the momentum. With the parent company \n under financial stress, DLF Brands was not able to invest into \n its partner brands. Also, it could not reach its five-year targets, \n which restricted growth further.<\/p>\n
The group is now going the Murjani way and gradually freeing \n up its portfolio of luxury brands. “Luxury is a futuristic \n business at the moment in India. The premium segment is much more \n profitable and scalable,” says DLF Brands chief executive \n officer Dipak Agarwal.<\/p>\n
He adds that luxury brands do have a big future in India, but \n they will need another five to seven years to achieve a strong \n scale and market size. “For us, size with speed was important,” \n he says. The company opened only four Ferragamo and three Armani \n stores since it entered the luxury brands segment in 2008 as expansion \n of such brands in a limited market was difficult.<\/p>\n
In comparison, its British partner in the premium segment, Mothercare, \n which sells prams, pushchairs, car seats, baby clothes and maternity \n dresses, entered India in 2009 and already has 42 stores. It will \n add another 15 outlets this year. Understandably, DLF has planned \n aggressive expansion for premium brands in its portfolio.<\/p>\n
Another separation story is of Delhi-based Blues Clothing Company \n and Italian brands Versace and Corneliani. Blues, which started \n off as a suit retailer, shot to fame by tying up with the two \n marquee brands. But the partnership hit the wall as, sources say, \n Blues did not have sufficient financial wherewithal and management \n bandwidth.<\/p>\n
“International brands are looking for Indian partners who \n have the ability to facilitate growth and help multiply their \n presence across the country, housing them in the right environment \n and coming up with out-of-the-box ideas,” says Roasie Ahluwalia, \n general manager (marketing), Genesis Colors, which markets Burberry \n and Jimmy Choo.<\/p>\n
The global slowdown, too, has been a spoiler. “It extends \n the gestation period for a business to break even. It also reduces \n the ability of companies to pump money into a venture,” says \n Devangshu Dutta, CEO, Third Eyesight.<\/b><\/p>\n
And to top it all, policy roadblocks—chiefly FDI in retail—have \n irked foreign brands planning Indian launches. “It is a great \n disappointment that the government has not been proactive in pushing \n policy reforms,” says Tikka Shatrujit Singh, chief representative \n in Asia, Louis Vuitton Moet Henessey. “Instead of encouraging \n investment, they have delayed the whole process. And for want \n of a suitable avenue, investments may go elsewhere.”<\/p>\n